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NFP Friday: How past data releases have defied economic theory and impacted EUR/USD exchange rate

Alejandro Zambrano Alejandro Zambrano 05/05/2023
NFP Friday: How past data releases have defied economic theory and impacted EUR/USD exchange rate NFP Friday: How past data releases have defied economic theory and impacted EUR/USD exchange rate
NFP Friday: How past data releases have defied economic theory and impacted EUR/USD exchange rate Alejandro Zambrano
Traders are bracing themselves for NFP Friday once again, as economists anticipate a deceleration in job growth from 236K to 190K, an increase in the unemployment rate from 3.5% to 3.6%, and unchanged wage growth at 4.2% annually. The report will be published at 12:30 GMT on May 5, 2023. 

Examining the impact of past NFP data releases on EUR/USD, we can see that over the last 12 months, the exchange rate has risen in the four hours following better-than-expected data, indicating that the US economy created more jobs than anticipated.  

Conversely, when NFP data was lower than expected, the EUR/USD exchange rate declined. 

This trend contradicts economic theory, as better-than-expected US data should boost the US Dollar. However, it's important to note that over the last 12 months, economists and investors have predicted a global recession due to the aggressive rate hikes by central banks worldwide. 

My rationale behind the price action is that better-than-expected NFP data has lowered demand for the US as a haven. The idea is supported by the strong correlation between the EUR/USD and stock market indices. In October 2022, the EUR/USD reached its lowest point at 0.9538, and the S&P 500 hit its lowest point in the same month. Since then, the EUR/USD has risen by 15%, while the S&P 500 has gained 16.29%. For tomorrow’s NFP it is therefore expected the correlation to prevail i.e., better than expected data should support EUR/USD and vice versa.   


EUR/USD trend remains upwards  

As we headed into the NFPs, the EUR/USD exchange rate was upward. The price was supported by a trend line, as seen in the ThinkTrader chart below, and the trend would remain bullish above the April 17 low of 1.0909. Given the data above, a very weak NFP figure would be needed to end the uptrend. If the price slides below 1.0909, traders might target the next major low, the March 24 low of 1.0714.
EURUSD-ahead-of-NFP-May-5-2023.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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