Non-farm payrolls: EUR and NZD more vulnerable to strong data, GBP could outperform on weak data

The US June non-farm payrolls report is due for release today. It is widely expected to show the US economy added 230K jobs in June after 280K job additions seen in May. The unemployment rate is seen falling to 5.4% in June from 5.5% in May. Average hourly earnings are seen rising 0.2% month-on-month in June, after rising 0.3% in May.

Dollar bullish scenario: NRP print above 200K with rise in average hourly earnings

Job gains above 200K accompanied by a rise in the hourly earnings could trigger a fresh bull run in the USD index.

A point worth noting is the sharp uptick in the personal spending (0.9%) last month, which triggered hopes that US consumer is finally returning to markets on the back of sustained job gains and lower borrowing costs.

Consequently, an uptick in the average hourly earnings (leading to increased personal spending) would further cement the expectations of a September rate hike and lead to strength in the USD index. Add to that, the uncertainty surrounding Greek referendum and trading holiday tomorrow and we could have a big up move in the USD.

In such a case, the EUR and the NZD could turn out to be the biggest losers.

EUR/USD: Could drop to 1.0965 (50% Fib R of 1.0462-1.1467)

The shared currency is obviously at risk as the ECB is at odds with the Fed with regards to monetary policy path. The ECB just announced the inclusion of more assets in its monthly QE program, while a strong data would increase the Fed rate hike possibility. Add to that the Greek referendum on sunday

• The pair currently trades at 1.1072. The gains are being capped at 1.1087 (5-DMA)

• The spot is also trading below the 1.1084 (38.2% Fib R of 1.0462-1.1467)

• The daily chart also shows a bearish daily close on Wednesday ( below the rising trend line)

• Consequently, the pair could be pushed to 1.10 (100-DMA), a break below the same could open doors for 1.0965 (50% Fib R 1.0462-1.1467).

NZD/USD: Doors open for 0.6560 (May 2010 low)

The GDT price index fell sharply on Wednesday, with mil powder price falling more than 5% at Fonterra’s GDT price auction. The RBNZ cut rates last month and said it could undo the rate hikes witnessed last year.

USD bearish scenario: NFP print weaker-than-expected and a drop in average hourly earnings

The optimism generated by a rise in the personal spending and last month’s NFP report could be erased if the average hourly earnings fall in June. Moreover, even an NFP print below 230K accompanied by a drop in the average hourly earnings could turn out to be a bearish USD scenario. Meanwhile, a positive average hourly earnings may not be able to support the USD in case the NFP print is under 200K.

In such a case, the obvious choice is the British Pound, since the BOE is the only other major central bank, which is widely perceived to be telegraphing a rate hike. The Pound could also find support due to the sell-off in the EUR/GBP pair ahead of Sunday’s Greek referendum.

GBP/USD: Could break above 1.5638 (38.2% Fib R of June rally)

• The technical chart is indicating a further bearish move to 1.5550 (50% Fib R), after having failed to sustain above 1.5606 (23.6% Fib R of Apr-June rally)

• However, in case of the weak NFP data, the pair could rise above 1.5606 to break above 1.5638. A daily close above the same could lead to re-test of 1.57 on Friday on a possible sell-off in EUR/GBP ahead of Sunday’s referendum.