Trading the News: U.S. Non-Farm Payrolls (based on dailyfx article)
The U.S. Non-Farm Payrolls (NFP) report may spark a bullish reaction in the dollar (bearish EUR/USD)
as the economy is expected to add another 215K jobs in in April, while
the jobless is projected to narrow to 6.6% from 6.7% the month prior.
Why Is This Event Important:
A pickup in job growth paired with a further decline in unemployment may
put increased pressure on the Federal Open Market Committee (FOMC) to
normalize monetary policy sooner rather than later, but the data may do
little to alter the Fed’s policy outlook as Chair Janet Yellen remains
reluctant to move away from the zero-interest rate policy (ZIRP).
The ongoing strength in private sector consumption paired with the
uptick in business sentiment may prompt a sharp rise in job growth, and a
better-than-expected print may generate a near-term pullback in the
EUR/USD as it raises the fundamental outlook for the U.S. economy.
However, rising input prices paired with the persistent slack in the
real economy may push businesses to scale back on hiring, and a dismal
NFP print may heighten the bearish sentiment surrounding the reserve
currency as it drags on interest rate expectations.
How To Trade This Event Risk
Bullish USD Trade: NFPs Advance 215K+; Unemployment Slips to 6.6%
March 2014 U.S. Non-Farm Payrolls
EURUSD M5 : 37 pips range price movement by USD - Non-Farm Employment Change news event :
At the March Non-Farm Payrolls release we saw a print of 192K vs. 200K
estimates and the figure, largely in line, caused little follow through
in the EUR/USD pair. Following chop on both sides, we the week slightly
higher. On Wednesday we saw ADP Employment Change figures for April come
in slightly above estimates at 220K vs. 2010K expected. This will be
the last major event risk for the week a key for monthly opening ranges.
EUR/USD, Gold React Violently to Mixed U.S. Jobs Data
Volatility was highlighted on Friday in the foreign currency and
commodity markets after the release of a U.S. Non-Farm Payrolls report
that beat expectations. The report showed the U.S. economy in April
added the most jobs in more than two years.
According to the latest data, the U.S. labor force added 288,000 new
jobs in April, its strongest showing since January 2012. Economists were
looking for a gain of 216K. The unemployment rate also dropped more
than expected to 6.3%. This was its lowest level since September 2008.
The negative aspects of the report included a drop in the size of the
labor force and no change in average hourly wages.
hourly wages portion of the report caused the most uncertainty,
triggering the volatility. This portion of the report is watched closely
by the Fed, taking the place of the previously watched unemployment
rate. The weak average hourly wages growth is an indication that
inflation is non-existent and this is a major concern for the Fed.
EUR/USD rebounded after the jobs report led to a sharp break. The
upside momentum puts the Forex pair in a position to challenge
resistance at 1.3872 and 1.3888. Short-covering ahead of next week’s key
European Central Bank decision regarding additional stimulus may be the
reason for today’s intraday rally.
Today’s mixed jobs report
triggered a similar response from the GBP/USD. This market has a genuine
upside bias because speculators believe the Bank of England will begin
to seriously consider an interest rate hike sooner than expected.
Technically, the Forex pair is trading inside an uptrending channel with
1.6921 the upper boundary and 1.6787 the support.
The U.S. jobs data triggered a volatile outside move in the June
Comex Gold market because of the wicked U.S. Dollar trading action.
After an initial break, however, gold turned higher because of the
escalation of violence in Ukraine. Technically, the main trend is down
on the daily chart, but the market is poised to take out $1306.60, a
move which would turn the main trend to up. The major support remains
June Crude Oil futures finished higher. Traders seemed
to be immune from the jobs data and the bearish supply situation. The
market stopped short of changing the main trend to down on the daily
chart and no appears to be in a position to retrace the break from
$104.10. This will be considered a normal correction. However, it may
present an opportunity next week for short-sellers to initiate new
GOLD (XAUUSD) Fundamentals (based on dailyfx article)
Gold Big Levels Loom as Support; Above 1306 is Bullish
Gold prices are softer on the week with the precious metal off by 0.42%
to trade at $1300 ahead of the New York close on Friday. The week was
marked by continued weakness in gold prices as equities rallied into
fresh record highs. The shift came on Friday however, with gold prices
reversing course just ahead of key support on the back of a stellar US
labor report. Note despite the volatility, gold prices saw little
change in April with a gain of just $7 on the entire month. While our
longer-term market view remains weighted to the downside for gold,
recent price action suggests we should be looking higher heading into
the start of May trade.
The April non-farm payroll report highlighted the economic docket this
week with employment gauge showing a gain of 288K jobs last month,
pushing the headline unemployment rate to 6.3%, its lowest levels since
September of 2008. Despite the better than expected headline print,
it’s important to take note that the civilian labor force contracted by
some 800K workers, bringing the participation rate down to its lowest
level since December at 62.8% (a 35-year low). Gold initially spiked
lower before quickly rallying back towards the weekly highs on the
heels of the release. Although the report topped estimates, a dismal 1Q
GDP print earlier in the week and lackluster housing data is unlikely
to prompt any change in the Federal Reserve’s outlook and as such, gold
could remain supported in the near-term as Yellen maintains a dovish
stance on monetary policy.
The economic docket will be rather light next week with only ISM
non-manufacturing and trade balance data on tap for the US. Look for
comments from central bank Chair Janet Yellen to possibly impact market
sentiment as she testifying before the joint economic congressional
committee on Wednesday and the senate budget committee on Thursday.
That said, we’ll look for broader market sentiment to steer prices with
the technical picture offering further clarity.
From a technical standpoint, gold now looks poised for a near-term
recovery higher after posting a key outside day reversal ahead of a
critical support at $1260/70. This level is defined by the March
opening range low, the 23.6% Fibonacci extension taken from the advance
off the December 31st low and the 61.8% retracement of the advance of
the December low. The rally also took prices through trendline
resistance dating back to the 2014 high set on March 17th (interesting
to note- that was also a key outside day reversal). As such, or
immediate focus is on interim resistance at the 61.8% retracement of
the decline off the April highs at $1307.
We will use this level as our near-term bearish invalidation point with
a breach above targeting more critical topside resistance targets at
$1327/34. A breach surpassing this threshold would suggest that a more
significant low was put in last month with such a scenario targeting
levels back towards the $1400 threshold. Note that a break and close
below $1260 is required to put the broader down-trend back into focus
targeting the 2013 lows at $1178.
AUDUSD Fundamentals (based on dailyfx article)
The long-term outlook for the AUD/USD remains bearish as the pair
carves a lower high in April, and the Australian dollar remains at risk
of facing a larger decline in the week ahead should the Reserve Bank
of Australia (RBA) adopt a more dovish tone for monetary policy.
Even though the RBA is widely expected to keep the benchmark interest
rate at 2.50%, the persistent strength in the local currency may
undermine the central bank’s upbeat assessment for the $1T economy, and
Governor Glenn Stevens may continue to highlight the ongoing slack in private sector activity as the soft 1Q Consumer Price report
limits the scope to normalize monetary policy ahead of schedule. With
that said, the RBA may take a more aggressive approach in talking down
the local currency, but central bank’s verbal intervention may continue
to have a limited impact on the exchange rate as the ongoing pickup in
market sentiment heightens the appeal of the higher-yielding currency.
As a result, a further pickup in Australia Retail Sales paired with a
9.5K rise in employment may continue fuel expectations of seeing a RBA
rate hike sooner rather than later, and a slew of positive developments
may keep the AUD/USD afloat should the central bank show a greater
willingness to move away from its easing cycle.
In turn, the 0.9200 handle may continue to provide support in the days
ahead, and we would need to see a break and a close below this region
to favor a bearish outlook for the AUD/USD as the Relative Strength
Index preserves the bullish momentum from earlier this year.
GBPUSD Fundamentals (based on dailyfx article)
The pound has finished out an impressive month and week. Through April, the currency has advanced against all of its major counterparts.
In the past week alone, progress was more restrained; but the
perception was just as robust. The clear standout for the pound is
GBPUSD (often called ‘Cable’) with a move through 1.6850 that has
pushed it to a near five-year high. Having cleared yet another
technical boundary on a 10-month climb backed by enviably growth rates
and burgeoning rate expectations, is this currency bound to overtake
1.7000 to open up a much bigger bull run?
A medium-term outlook for the sterling must rely more on fundamentals
and less on mere technical momentum. Speculative appetite certainly
plays a dominant role in both bearing and conviction (momentum), but
underlying financial market conditions have sapped the drive from all
assets and pairs – including Cable. In seeking out the primary sparks
for the British currency, this is one of the few majors that doesn’t
simply await its cue from general risk trends. With a historically low
benchmark rate that is in the middle of the pack between the US and
Australian dollars, there is neither carry nor funding labels attached
to the pound. However, as speculation for a rate hike regime from the
Bank of England gains further traction; this may prove the fastest
horse in a slow race.
Amongst the majors, the BoE is perceived as the most hawkish policy authority behind the RBNZ
(which has already hiked rates twice). This hawkishness derives from
the impressive reversal in the UK’s economic health last summer and the
group’s simultaneous shift away from threatening further stimulus
program upgrades. As everything in the FX market is relative – this has
presented a particularly stark contrast to the likes of the Fed, ECB
and BoJ who maintain an expansionary policy.
Yet, it is important to recognize that the foundation of the pound’s
strength is built on expectations rather than current conditions. Gilt
yields and swaps show expectations for an opening rate hike from the
BoE well ahead of its US counterpart. Having priced in that forecast,
though, the burden is now on maintaining that optimism. Projecting a
move ahead of the central bank’s own timetable requires a consistent
stream of favorable data to persuade the MPC (Monetary Policy
Committee) to capitulate. Given the current bearings on rate
expectations, it is far more difficult to advance the timetable (a
bullish factor) and far easier to postpone it through data.
This focus leverages the potential impact UK data can have on rate
forecast and therefore the pound. The most obvious release this week is
the BoE rate decision. However, this is likely to prove uneventful.
When the central bank does not change its policy, they do not release a
statement detailing their reasoning. That said, there are plenty of
key indicators that will hit the areas of the economy.
For general economic forecast, Tuesday’s Composite PMI and Friday’s NIESR GDP Estimate for April offer the broadest scope.
Yet, particular industry updates may prove more convincing.
Manufacturing production for business activity, the RICS home sector
reading and construction output for housing, and the trade figure for
the external support. During each release, we should keep a leery eye on
GBPUSD and the 10-year UK bond yield.
The DAX as you can see rose during the majority of the week, but did
find enough resistance in the form of the €9600 level to push the market
back down a little bit. We believe that this congestion should send the
market higher eventually though, and that pullbacks will be buying
opportunities as the DAX has been wildly bullish over the last couple of
years. With that being the case, we are buyers above €9700, and most
certainly above €9800 as it would open the doors to the €10,000 level.
The NASDAQ fell during the bulk of the week, but found enough support
near the 4000 level in order to form a hammer, which of course shows
that the market does in fact have plenty of buyers below. With that, a
break above the top of the shooting star from the previous week, or the
4200 level if you will, is a nice buying opportunity. We believe that
there is a “floor” in this market at the 4000 level, and as a result we
are bullish still. On a move above the 4200 level, we think of this
market originally will try to get to the 4350 level, and then ultimately
the 4500 level.
The MIB rose during the bulk of the week, but found the 22,000 level to
be a bit too resistive to continue. This is the second week in a row
that we have found resistance in this general vicinity, so we think that
we may be heading into a bit of a consolidation move now, but we
certainly think that this market remains bullish overall. That being
said, we get above the 22,200 level, we are buyers as it would show
continued strength. However, we fully anticipate sideways action in the
The IBEX initially fell during the week, but found enough support near
the €10,250 level to turn things back around and head towards the
€10,500 level. The fact that the market touch the top of the shooting
star suggests that the market is going to try to breakout to the upside,
and we believe that the IBEX should continue to be one of the better
performers in Europe as the Spanish index always gets a lot of “hot
money” flowing into it. With that, we are bullish and look at buying on
dips, and a break above the top of the range for the week.