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How to trade EURUSD during the NFP on January 5, 2024

Alejandro Zambrano Alejandro Zambrano 04/01/2024
How to trade EURUSD during the NFP on January 5, 2024 How to trade EURUSD during the NFP on January 5, 2024
How to trade EURUSD during the NFP on January 5, 2024 Alejandro Zambrano

The first US NFP report of the year will be released on January 5 at 13:30 GMT. In this short article, we will cover how the price of EURUSD tends to be impacted by the NFP. We will also look at the key levels traders will need to watch when planning trades.  
 

The outcome of this NFP report may be inconsequential, as EUR/USD tends to rise four hours post-release regardless. In the past 12 months, excluding the months of March and April, the currency pair has shown a bullish trend 58% of the time, with its price increasing by an average of 79 pips. The reason for excluding these two months is that the data shows that the market barely reacted to the news. Conversely, in the 42% of instances when its price fell, the decline was  an average of 56 pips. This suggests a more favourable outcome for those who bought, as, on average, they would make 41% more pips on the winning days over the losing days. This is bolstered by the 58% likelihood of a bullish outcome four hours after the news hits, presenting a solid risk-reward ratio and a good winning percentage.  



The trading pattern of EUR/USD seems tied to risk appetite. A better-than-expected U.S. jobs report typically causes an initial dip in EUR/USD, but it usually recovers within four hours. This is attributed to  USD being known as a haven asset. Hence, people sell it when times are good and buy it when times are bad.

A clear and positive correlation has existed between EUR/USD and the S&P 500 index since October 2022, as you can see in the chart below.
It is unlikely that the correlation between EURUSD (black line below) and the S&P 500 (orange line) will hold forever, as at some point, the relative performance of the Euro area and the US and relative interest rates will matter more for the market. But for now, as we are about to experience the first NFP report of 2024, I suspect the pattern will hold.



So, does the data suggest that one should be bullish on EURUSD? On the one hand, it does, but not using support and resistance levels on the day could  potentially achieve less optimal results. Also, past performance  does not indicate future returns, so having a hands-on approach is essential.
At the time of writing, EUR/USD is trading at 1.1114, and the price had triggered an inverse head and shoulders pattern a few days earlier by trading above 1.1017. As explained in Navigating EUR/USD: the final push and the patterns that could shape 2024, the pattern has a target of 1.1278.

With EUR/USD almost moving vertically in recent days, it seems a correction is pending. Yet, if the price does not firmly push back below 1.1017 by trading below the 1.0989 level, I  believe the trend is bullish and suspect traders that are not already long between 1.1017 to 1.1060, with their targets set on 1.1132 followed by the inverse head and shoulders pattern target of 1.1278. If the price trades below the 1.0989 level, this will  invalidate my bullish bias.

EURUSD 4-hour chart

Picture3.png

 

Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.

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Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.
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