Outlook for the Dollar..
Dear Friends/Fellow Traders,
As I have stated before, the US Non-Farm Payroll numbers are the biggest market movers for most financial markets. It is a reflection of the overall health of the economy as the NFP states how many jobs are created in that particular month. Friday morning was a big surprise for many as the NFP actually surprised to the upside for the Dollar. The October numbers were a little bit under expectations (at least triple digit) at 92k, and the market went wild and started selling off the Dollar in the first minute or so. Following the October number was a revised September number, from 51k to an astounding 148k, bringing the two month average to 120k. While the October number alone may have suggested another month of weak job growth, the September revision shot down that pessimistic outlook and everyone started buying Dollars like crazy. So basically in the two minutes following the NFP release, the EUR/USD shot up to 1.2795 from 1.2770, then plummeted to 1.2710. The originally overjoyed Dollar Bears were consequently disappointed as the revision came in really strong.
On Halloween I stated that I was Dollar Short and that I expected a weak NFP number for October, which was true, but I didn't expect such a strong revision for September. Following my strategy by always planning for the worst, my positions was stopped and reversed at my stop-loss points, and I quickly netted a small profit. For those of you who may be confused let me explain exactly what happened. I had 2 EUR/USD long positions open at 1.2763, with stop losses at 1.2740, risking 23 pips per position for a total of 46 pips. In the first minute following the NFP release, the EUR/USD rallied to 1.2795, which means that I would have had a floating profit of 32 pips per position for a total of 64 pips. That made me very happy as my expectations were met. But the revised figure came out right after and the EUR/USD plummeted to 1.2710 within one minute (from 1.2795). My stops were run at 1.2740, but I had a reverse order to SELL two lots of EUR/USD at 1.2740. That means my position changed from Long EUR/USD to Short EUR/USD at that point, taking the 23 pip loss at 1.2740. But since the EUR/USD fell further to 1.2710, I would have a 30 pip floating profit following the 23 pip loss, which means I am still 7 pips in profit, for a total of 14 pips (because I had two positions open). True, it is a very small profit compared to what could have played out to be a large rally in the EUR/USD (which could possibly have netted me 100+ pips profit per position); however, having the stop and reverse strategy in place I not only protected myself from large losses, but also netted a small profit. The worst-case scenario played out and I was lucky to even net a small gain in that respect.
What does this all mean? It means that the US economy may not totally flop as suggested by the previous string of weak data, at least not in the near term, because job growth is still relatively strong. The short-term Dollar Bears are throwing in their towels for now, and positioning themselves for the mid-term elections coming up later in this month. The US mid-term election is a pretty rare event (just as the US presidential election is), since they occur only once every 4 years. In the past these events have led to very big market moves, so brace yourselves. We will see whether we have a divided congress or not. A divided congress does not bode well for the US Dollar, and we may see a sharp drop if this is the case.
Stay Tuned!
To successful trading,
Dickens
As I have stated before, the US Non-Farm Payroll numbers are the biggest market movers for most financial markets. It is a reflection of the overall health of the economy as the NFP states how many jobs are created in that particular month. Friday morning was a big surprise for many as the NFP actually surprised to the upside for the Dollar. The October numbers were a little bit under expectations (at least triple digit) at 92k, and the market went wild and started selling off the Dollar in the first minute or so. Following the October number was a revised September number, from 51k to an astounding 148k, bringing the two month average to 120k. While the October number alone may have suggested another month of weak job growth, the September revision shot down that pessimistic outlook and everyone started buying Dollars like crazy. So basically in the two minutes following the NFP release, the EUR/USD shot up to 1.2795 from 1.2770, then plummeted to 1.2710. The originally overjoyed Dollar Bears were consequently disappointed as the revision came in really strong.
On Halloween I stated that I was Dollar Short and that I expected a weak NFP number for October, which was true, but I didn't expect such a strong revision for September. Following my strategy by always planning for the worst, my positions was stopped and reversed at my stop-loss points, and I quickly netted a small profit. For those of you who may be confused let me explain exactly what happened. I had 2 EUR/USD long positions open at 1.2763, with stop losses at 1.2740, risking 23 pips per position for a total of 46 pips. In the first minute following the NFP release, the EUR/USD rallied to 1.2795, which means that I would have had a floating profit of 32 pips per position for a total of 64 pips. That made me very happy as my expectations were met. But the revised figure came out right after and the EUR/USD plummeted to 1.2710 within one minute (from 1.2795). My stops were run at 1.2740, but I had a reverse order to SELL two lots of EUR/USD at 1.2740. That means my position changed from Long EUR/USD to Short EUR/USD at that point, taking the 23 pip loss at 1.2740. But since the EUR/USD fell further to 1.2710, I would have a 30 pip floating profit following the 23 pip loss, which means I am still 7 pips in profit, for a total of 14 pips (because I had two positions open). True, it is a very small profit compared to what could have played out to be a large rally in the EUR/USD (which could possibly have netted me 100+ pips profit per position); however, having the stop and reverse strategy in place I not only protected myself from large losses, but also netted a small profit. The worst-case scenario played out and I was lucky to even net a small gain in that respect.
What does this all mean? It means that the US economy may not totally flop as suggested by the previous string of weak data, at least not in the near term, because job growth is still relatively strong. The short-term Dollar Bears are throwing in their towels for now, and positioning themselves for the mid-term elections coming up later in this month. The US mid-term election is a pretty rare event (just as the US presidential election is), since they occur only once every 4 years. In the past these events have led to very big market moves, so brace yourselves. We will see whether we have a divided congress or not. A divided congress does not bode well for the US Dollar, and we may see a sharp drop if this is the case.
Stay Tuned!
To successful trading,
Dickens
posted by ForexDragon at 9:24 PM
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