Non-Farm Payrolls could be a Win-Win Situation for EUR

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A brand new month and brand new highs in the EUR and the USD/JPY greet traders as they come to work this morning, as the NFP is awaited.

Update: NFP +157K, huge revisions

Let’s start with the USD/JPY. The break above the 92.00 level has set off some stop loss buying as the currency pair reached a high of 92.29, the highest it has been since 2010.

Traders were sellers of the Japanese currency as speculation that Prime Minister Abe will select a Bank of Japan governor, who will be in agreement with Abe about boosting monetary stimulus.

Add to that the fact that equity markets are strong giving traders confidence in pacing “risk on’ trades and you have the perfect formula for a weaker JPY. Adding to the JPY’s woes was the fact that the Japanese unemployment rate rose to 4.2% in December, from 4.1% in November. Household spending also fell from a year ago.

If you have followed PM Abe from the beginning, this move is no surprise, but given the levels that we haven’t seen for some time, the move in JPY is a bit surprising. We have heard that the Japanese government is content with USD/JPY at 95-100 so it looks as if there will be a slow move higher to achieve that level. That’s good news for those customers that need to buy JPY and have been patient, waiting for this type of news. Initial resistance now is at 92.40, followed by 92.65. Support is at .9180.

Now if you are a buyer of EUR, recent indicators have been positive. The single currency continued its rally overnight and into the European morning, breaking the 1.3600 level convincingly. It has traded as high as 1.3675 this morning, rallying on better than expected PMI numbers from the Euro Zone as well as a better than expected EMU unemployment rate. The EMU unemployment rate remained at 11.7% in December. It was expected to rise to 11.9%. EMU PMI rose from 46.1 to 47.8, better than the 47.4 that was expected. German, Italian and Spanish PMI rose while the French PMI eased.

So, now we turn our attention to the US NFP release later this morning. It is expected to be 155,000 in January and the unemployment rate is expected to remain at 7.8%. ISM manufacturing will also be released today and that is expected to fall slightly to 50.5 from 50.7.

I don’t think this NFP number is going to be as significant for the USD as I thought earlier. EUR sentiment is all one way at the moment.

  • A bad NFP number, much lower than the 155,000 expected will obviously prompt buying of the EUR.
  • But I’m afraid with sentiment the way it is at present, a good NFP number, will rally equities and give traders confidence to add “risk-on” trades, therefore continuing to buy the EUR.

It will be interesting to see the reaction at 8:30 EST time.

Here is how to trade the Non-Farm Payrolls with EUR/USD.

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About Author

Matthew Lifson is a Foreign Exchange Trader and a Market Analyst. with Cambridge Mercantile Group.