NFP Trade Setup – 5th June 09

Trading the NFP has been both tough and unpredictable in the last few months. The market does seem to have a constant pre-news perspective about the release and we have been having a mixed bag of results of late. Often, when the market has been hit with a large unemployment number, this will mean weakness for the USD and expect our majors such as Eur/Usd and Gbp/Usd to gain in value significantly, significant meaning about 50-200 pips easily. This has constantly been the case month in month our for the last few months of the last year, 2008.

However, as of late, there has been an unfounded optimism with the USD and whatever negative news that there might be thrown at the market, the market does seem to swallow the news without batting an eyelid and completely moving the opposite direction. In other words, even if the news would be bad for the dollar, the pairs(with reference to the same as mentioned above) still end up losing value against a strengthening dollar. This has been the case for the last few months and it has greatly conflicted with our theories and practical results, as with the past.

This has caused a new breed of blind speculators to simply go short on all majors, as there is an unsaid consensus that whatever bad news that the dollar might face, it will still gain value and all other majors will drop in value. Well, just when one feels that he/she has the upper hand about the market and seems to have figured out the “unspoken” code about what the market is doing, they are always proved wrong by the market. That was exactly what happened last month, 8th May, when NFP report was expected at 590k, the actual numbers came out at 539k. Despite being a better number than the forecast, a rare event considering the last 1 year of results, the dollar completely weakened and lost its value with all the majors. E/u and G/u both rallied almost a 150 pips in the next few hours before the market closed for the weekend. Well, don’t attempt to predict the market. Just trade what it gives you!

In the setup for our NFP trade results today, i am purely going to speculate on whichever direction the market might break out into. I have a bias that the numbers will come out weak, and in anticipation of the GM bankruptcy and further US economic issues, there could be less optimism than what we might have seen in the last few months. In any case, we don’t take a trade until the news is out and the direction is “confirmed”. By saying confirmed, i mean that a clear direction has formed and not jumping to conclusions based on the whipsaws caused by early news release.

The expected forecast is 520k and if we get a much worse off number, we can speculate on a long with Eur/Usd and Gbp/Usd. If we get a stronger number, i am doubtful that we will, we might go short on the same pairs. However, be careful that you wait for the entire news release to be out, with both the actual news report and the revision numbers. You might also choose to let the UnEmployment Rate numbers tally in the same direction before being more confident in your trade direction.

All the best,
Seeni

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