Friday, February 4, 2011

Will U.S. Nonfarm Payrolls Top Expectations And Place Additional Pressure on the EURUSD?

Talking Points

* ADP Employment Jumps 187K in January

* ISM Manufacturing Pushes Higher in January

* Unemployment Rate Expected to Rise to 9.5 Percent

* Consumer Confidence Climbs to a Seven Month high

Following the ECB rate decision which fueled a selloff in the euro,
currency traders will shift their focus to the highly anticipated U.S.
nonfarm payrolls report for potential confirmation of a EURUSD
turnaround. Economists are expecting payrolls in the world's largest
economy to climb to 145K in January after rising 103K the month prior.
Heading into the report, market bias is dollar positive, and a better
than expected report could add momentum to the dollar rally.

Taking a look at December's report, payrolls rose 103K amid
expectations of 150K, while private payrolls increased 113K. At the
same time, the unemployment rate fell to 9.4 percent as the labor
force participation rate scaled back. The breakdown of the release
showed that average hourly earnings climbed 0.1 percent, while the
unemployment to population ratio was unchanged at 58.3 percent. For
this month's report, weather might have dragged down employment as
severe weather conditions weighed on areas such as construction.
However, I do not rule out an employment print of 140K or greater as
the private sector gradually gains momentum.

Ahead of the release, ISM non-manufacturing composite rose to 59.4,
marking its highest level since August 2005, with the employment
component climbing to its highest level in over 7 months. Not to
overlook, the employment will be released tomorrow. The
report is of great importance because the index measures overall
employee demand from online recruitment activity, reviewing more than
1500 websites. In turn, an increase in the report may hint that hiring
is picking up. It is also worth noting that consumer confidence is at
a seven month high as households gain confidence that the economic
recovery is gathering strength. Conversely of market expectations, Ben
Bernanke held a press conference today and said that the unemployment
rate is unlikely to decline as fast as the fed likes, while noting
that growth is not fast enough for a significant turnaround in the
labor force. Furthermore, Mr. Bernanke added that he sees some "good
news" in the labor market, and expects more. Indeed, the comments by
the central back head were fairly mixed; however, the payrolls release
will add color to the blurry picture.

For the past two months, the employment report failed to meet
expectations, with the result leading the dollar to push lower against
its major counterparts. The selloff was largely due to increased
expectations that payrolls would post a remarkable gain following the
impressive ADP employment release which showed a surprising 247K
print.The release failed to live up to market expectations, and as a
result, currency traders punished the greenback. In January, ADP
employment climbed to 187K. Though the reading bodes well for
tomorrow's nonfarm payrolls release, traders should not rule out
another dismal release as the economic outlook for the U.S. remains

All in all, traders should trade carefully ahead of the release as the
dollar stands at the crossroads. Indeed, the release may add color to
the bleak economic picture and pave the way for a profitable trade
heading into next week's session.Indeed, the dollar has been gaining
momentum recently on the back of euro weakness, thus, a better than
expected report will push the buck higher. Conversely, a dismal NFP
figure may set the stage for a short dollar position as concerns
surrounding inflation and the labor force remains. Nonetheless,
gauging sentiment will be as important as the report itself.

Created by Michael Wright

Source: Bloomberg– Created by Michael Wright

The unemployment rate in the U.S. has fallen from a high of 9.9
percent in April to 9.4 percent in December, according to the U.S.
labor department. Economists are now expecting the jobless rate to
return to back to 9.5 percent in January. Maximizes

EURUSD 4 Hour Chart

Source: Intellicharts – Prepared by Michael Wright

EURUSD: The pair as recently pushed below its rising trend line that
was intact for a little less than a month. Indeed, the recent break
below 1.37 opens the door to the 1.3570 area. It is worth noting that
our speculative sentiment index now stands at -1.79 and is expected to
push lower as traders bet on a euro pull back. With daily studies
recovering from overbought territory, I do not rule out a further
losses in the EURUSD.

Written by Michael Wright, Currency Analyst

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Michael Wright is the author of FX Headlines, Fundamentals vs.
Technical's, Intraday Trading, Weekly Spotlight, and Forex Trading
Weekly Forecast


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