Quoting NewstraderFXDislikedWhat To Look For With the NFP:
The NFP is one of the most important and widely traded economic reports, but every report must be traded in the context of what has been happening in the market.
8:30am USD Nonfarm Employment Change Consensus: 75-125K median 100K Previous 92K
The dollar started to deflate on 10/25, when the EUR/USD was around 2600 and eventually rose to around 3350 on 12/3. There are several reasons for this and I will go over them at another time. What we want to do now is trade this number successfully, if possible.
The first thing to look at is the consensus number range and the median. Remember that generally, reports that come out as expected are not good to trade, so the first thing we need is a number outside the range.
Next, we need to know the trend along with some recent support and resistance levels. Obviously, the trend for the dollar has been weakness, but if you look at 12/3 until now (as I write this it's 12/7 @ 21.00 GMT), you'll see it's been within a band from around 3350 to 3250. The high price got rejected twice as did the low price, so i'm identifying these as my resistance and support levels. What does that tell me? The $ bear market is over for now. Only further strong fundamentals can push the Euro higher.
Next, let's look at what I feel are recent important important fundamentals and i'll discuss them separately.
US manufacturing ISM was down ($-). The market expected it to be down and it was lower then consensus. This component makes up around 20% of the economy.
US sevices ISM was up nicely ($+). This component makes up around 80% of the economy. This was also expected to be down, but surprised to the upside. This report helped to end the $ bear market.
Trichet's news conference. This was not interpeted by the market as being Euro+, because the Euro would have risen at least to the resistance level if the market had seen it otherwise and that never happened. The highest it got to was around 3320. Why didn't it go down then? The market was waiting for the NFP. So where do we stand now?
Trichet's conference was the fundamental that has pushed the Euro to the edge of the cliff. All it needs now is that last inch or two to go over. Will that happen? It all depends on the NFP.
Before considering a trade, you must listen for the revision to the prior month. If the revision doesn't match the direction of this month's number, I wouldn't trade it.The absolute safest thing is to wait a few minutes for support or resistance to get broken and not get in right away.
If the NFP surprises strong (150K or better) and the prior month is revised up, I would look for a break below 3250 before going short. If this gets broken, it will tell me the market is convinced (for the time being) the US economy is too strong for a rate cut. Watch treasuries also, especially the 10 yr note, as that often leads currency. If the NFP surprises weak (below 75K) and the prior month is revised down wait for a break above 3350 before going long and it better get there convincingly. I would be very careful here.
Here are the trades from best to worst:
1. An upward revision and the NFP stronger then consensus (over 150K) is the safest way to trade it and the best potential trade. There's alot more room for the Euro to go down then up.
2. NFP lower then consensus (below 75K) and the prior month is revised down. Still prettty good, just wait for 3350 and be careful with it.
3. NFP is in consensus and the revision is up (OK) or NFP in consensus and revision is down (less OK). Wait for support or resistance to break.
4. NFP is above consensus with no revision or below consensus with no revision.
Personally, I won't trade the other possibilities. That's my preference and my plan. Yours risk tolerance may be different. Maybe i'll miss a good opurtunity, maybe not. Good luck.
NewstraderFX
Ignored
everyone seems to be forgetting the unemployment rate. What it boils down to is a market that is so short dollars and at the end of a huge dollar sell-off. Traders will be ready to use any piece of good data to jump on. If headline figure comes in around 115k and unemployment rate <=4.3 or >=4.7 I doubt very much at all any revisions will make that much of a significant difference
