WEEK 3

Fundamental Analysis

NONFARM PAYROLL

What is the Nonfarm Payroll?

Reported on the first Friday of each month, Nonfarm Payroll refers to any job excluding farm work, government agencies, non-profit organisations and self-employment in the US. The most important statistic reported from the Nonfarm Payroll is the number of additional jobs added from the previous month, which is a strong indicator of economic health. 

Why is it important?

The total Nonfarm Payroll accounts for approximately 80% of the workers who produce the entire GDP of the US. The report contains valuable insights into the labour force including statistics of unemployment, sector performance and participation rate. All these figures directly impact the US stock market, US Dollar, and Gold price.

How does it relate to Forex?

The Nonfarm Payroll announcement is one of the most influential economic reports that traders always pay attention to. Due to the fact that it provides plenty of information to gauge the health of the US economy, when the report heavily deviates from the forecast value, huge volatility is seen in all US Dollar pairs. The most recent one occurred Saturday morning at 12:30 AM. The result was very poor (well below the forecast value), so the US Dollar weakened significantly. This week we will look at EUR/USD and USD/CHF and you will see the affect the Nonfarm Payroll announcement had on these pairs. 


Technical Analysis

EUR/USD

Figure 1: EUR/USD Daily Chart


EUR/USD seems to respect the downward channel, dropping down from the resistance all the way to support from Monday to Thursday. Friday saw the pair bounce up off the support line, with the very poor Nonfarm Payroll result assisting in its move up. The 1.12 level has proven to be a strong area of support historically and again on Friday. Looking at the weekly chart, the 1.12 level also coincides with the 61.8 Fibonacci retracement, providing further support.

Figure 2: EUR/USD Weekly Chart

Looking ahead, EUR/USD has lots of support, from the channel support line, 1.12 level and 61.8 Fibonacci retracement, meaning that tonnes of bearish pressure would be necessary for it to break below 1.12. In the short term, since it is still moving in a downward channel, it is reasonable to expect it to rise over the next few days to hopefully test the resistance line. Longer term, until it makes a clear break below 1.12 or above 1.15, we can expect it to continue to chop sideways.

USD/CHF

Figure 3: USD/CHF Daily Chart

USD/CHF failed again to penetrate the 1.1020 major resistance last Friday and posted a (weak) dark cloud cover candlestick pattern on the daily chart that awaits confirmation, signalling a potential bearish reversal of the minor uptrend that took off since last Monday. Short-term support (1st target) is located at 1.0050. A decisive close below this minor support will open up more room to the downside – 2nd target 0.9995.
 
With that being said, MACD is showing a bullish crossover above the base line (i.e. bullish territory) while ADX points to a potential strengthening of the minor uptrend. A decisive close above the 1.0120 major resistance signal a change in the year-long primary trend, which is something to watch out for. The second resistance is located at 1.0170, last reached in early 2017.

Economic Calendar