US Dollar Traders React to NFP Data

US Dollar Traders React to NFP Data

The NFP (Non-Farm Payrolls) are behind us now. As confusing as the price action was last Friday, it did start a new trading week a little earlier. The reason for this is the fact that the NFP data was somehow in line with expectations. The unemployment rate was unchanged, as was labor participation.

This data came after a week in which nothing really moved, as all eyes were on the NFP release and the market didn’t really know how to react until that release.

If the first reaction was a bullish on the US dollar, the secondary reaction was a classic summer trading environment, as markets reversed everything before the NFP.

Therefore, AUDUSD moved from 0.74 to the 0.7330 area, only to reverse the whole move and take the stops prior to the NFP release. The same was happening with the USDJPY, EURUSD, USDCAD, as algorithmic trading was confusing, to say the least.

Expectations for a rate hike in September are clearly on the table now that the NFP confirmed the strength of the US economy. There is still the possibility to see a delayed hike as the Fed is looking for “further improvement” in the labor market.

It is difficult to go below the 5% unemployment rate without the labor participation rate sinking even lower. If that is the improvement the Fed is looking for, then we should still see ranges all the way until the September meeting.

There is still another NFP release in September and any clues if that it will be soft or if it will miss expectations should sent the US dollar tumbling.

I am still favoring a lower US dollar as the Chinese economy is slowing, and this should translate into global slowdown. Such a slowdown should affect the US economy as well, and even if we do have a rate hike, it still doesn’t really mean much in the overall picture. Again, the Fed is most likely to hike, but not as the start of a tightening cycle.

EURUSD dips into the 1.08 area should be seen as buying opportunities targeting 1.14 and USDJPY should be a good sell on any attempt to take the 125 area. I would even say the GBPUSD is building energy to attack the all-important 1.60 level as Super Thursday turned out to be a total fiasco for the Bank of England. Longs from the 1.5450 area should target 1.58 in the first instance before breaking higher.

There are no important economic releases this week, so technical analysis should prevail in an environment in which fishy price action should dominate. Carefully planning each step and looking at the bigger picture is key for successful trading.

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