Trading US Non-Farm Payrolls: Think Like A Forex Dealer

Briefly put, the FX market continues to load up like a spring being coiled, ready to explode in one direction or another once the impetus is finally unleashed. What will that impetus be? No one is sure, but this morning’s NFP COULD be it, so what are the dealing desks going to do?

First let’s think about the numbers. Last month was a surprise with the number better than expected. This month’s estimates are for an even better month. But are we really out of the woods yet? There will be a lot of effort spent dissecting the numbers to see if all the jobs are being created by government spending. But the estimates being solid mean that there are positions being put on that favor a strong USD.

Now back to the dealing desks. A number of them are staffed by the junior dealers on the Friday before Labor day, so few desks will be willing to take on the largest of trades. And many of the desks are talking about the fact that there has been no significant move in the FX markets in the last few months; they fear the uncoiling of the built up energy in the markets as well.

So we expect that the numbers release will act similar to last month with a large move up and down around the numbers as no desk will sit on a large position to absorb trading flow in either direction. But we believe the risk / reward still favors short USD positions. If EUR/USD breaks the 1.44xx handle, which it did on an intraday basis last week, we think there will be an enormous short covering and will take us up into the 1.47xx handle.

We remain long EUR/USD and will ride out our position going into the numbers today.

PS - Gold’s move seems to have come from low interest rates and a few good economic reports in the last two days. Remember when the economy rebounds, all that money that the US Fed and other Central Banks have been printing will be like Monopoly money and WE WILL SEE SIGNIFICANT CHANGE IN THE RATE OF INFLATION.

Stay Nimble!

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