US Non-Farm Friday Expected Unchanged – August 7th 2015
US Non-Farm Payroll (NFP) is expected to be virtually unchanged from the previous month at +220K. Today showed a great example of a buy the rumor sell the news situation with the Pound. Everyone was expecting a 2-0-7 vote and the release came out at 1-0-7. As I mentioned in yesterdays forex commentary, the first number is those who voted for a hike, the second number is those who voted for a rate hike, and the final number is those who voted to keep rates unchanged. Obviously with one less person voting for a hike today the GBP/USD got slammed to the downside.
This is a good example of the market over reacting to the news based on the large move up from the previous day. So many times people look at news alone and fail to factor in what occurred prior to the news. In this case they priced in good news on the Pound, therefore when the bad news came out not only did you have those selling the news but the move was compounded by those who expected the bullish move who got caught long.
One of the most common areas you will see this occur is with US data. On Wednesday we saw both the GBP/USD and the EUR/USD move up aggressively past the ADR. When the US data came out negative you would think the Pound and Euro would continue their move to the upside. Instead we saw both pairs spike up slightly but then get sold off. If you trade in or around news make sure to keep an eye on how the move going into the news effects the actual move that occurs after the release. On to the markets.
EUR/USD Keeps Tight Range For Second Day
For the second day in a row the EUR/USD keeps a very tight range. If NFP was not coming out tomorrow morning I would have more of a bias for a move to the downside. With NFP coming out tomorrow I would expect the market to not show too much commitment to either direction ahead of the news.
Today the EUR/USD produced 2 nice trade setups and almost a third at the beginning of the European session if it would have only provided the pullback for an entry after the confirmation. The first trade setup that provided an entry was off of the early European session lows. The market came back into those lows and create a nice stop run long at the beginning of the New York session for a full 4% take profit. The second trade was a short off of one of our upper manipulation points. This trade resulted in a break even close based on one of our trade management rules.
Today I’m still open on direction from any of the listed manipulation points. Often with Non-Farm Payroll you tend to get one of two types of markets. The first type of market is one that does very little and maintains a very tight range ahead of the news. The second type of market is the one where you get pre-positioning ahead of the news as people anticipate the news or close positions ahead of news. Either way it is best to steer clear of carrying any short term position into the news.
Large GBP/USD Sell Off After Economic News
As I mentioned earlier the Pound really got smashed after a worse than expected piece of economic data. Today I’m still very much open on direction from any of the listed manipulation points in the charts. Many times traders get trapped chasing the follow through the expect to come after a big down move. That’s not to say the GBP/USD won’t continue down today but large news moves such as this tend to be retraced on the short term even if they do continue down later in the day. As far as long term perspective with the COT data mentioned earlier this week in the commentaries, I dropping the stronger bias to the upside. The main reason is this rate vote today is big enough news to cause a bigger shift. Therefore the position that they started to put on last week could at the very least be put on hold if not retraced. If however we see anther week of buying with this weeks COT data, the long bias will once again return next week for Monday.
Forex News For August 7th 2015
US Non-Farm Payroll, Average Earnings, And Unemployment Rate 8:30 AM Eastern: All three pieces of data have become much more in focus over the last few months especially. For literally years the only number that really mattered was the headline number and the revision to last months number. Now the other two numbers make a very big difference to the reaction in the market. The headline will still get the majority of the attention, and a deviation of 40K +/- from the expected number will create a move that is unlikely to be shaken by the other numbers. The only exception to this would be the other two numbers completely disagreeing with the headline, and doing so in a big way.
Over the last year the safest Non-Farm Payroll trade has been a continuation trade on a 30-40% retrace of the initial move. This move has had almost perfect follow through over the last year. The only trouble is when the market simply doesn’t pullback and you don’t have an opportunity to chase the move if that is the desire.
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