“Every once in a while, the market does something so stupid it takes your breath away.” – Jim Cramer
In trading there are things that will make you smart and there are things that will make you money. It’s prudent to know the difference.
LOOKING AHEAD
The first week of the month is always exciting. U.S. news starts things off slow but ends the week with a bang. A lot of people don’t like trading around non-farm payrolls data (NFP) because if you’re going to trade fundamentally, you have to be smarter than the market (or maybe just as smart as the market in that you have to both be going the same direction).
Not only should you be able to predict the outcome of the event, but you should predict how the market will react when the actual numbers differ from whatever everyone thought they would be. That sounds like a lot of work. That’s the fundamental problem with trading forex. Currencies don’t fit into industry designations where you can compare their respective valuations and pick winners and losers.
MOVING MARKETS
A currency pair is pretty much driven by one thing at a time. Notice when Greece was in the news, everyone knew the Euro zone was going to fall apart, countries were going to drop out of the euro and we were going to see the EUR/USD at 1:1 or better (not necessarily in that order).
I got emails from friends and family asking what I thought would happen. The response usually involves something smart sounding about sovereign debt and national bonds and inflation or deflation or maybe gold. But as traders, the only thing that mattered was which way things were going and how long they were going to go in that direction. We witnessed the same thing during the 2008 crash. Heck, back in the day when the euro was at 1.60, everyone knew it was going to keep going up to 1.80 or 2.00. Hey, we might still get there.
So, just as with the long term, short term events drive the market in a direction and everyone is right until they aren’t anymore. In those times, technicals are still respected. Price still looks at levels. Things don’t go one direction forever (though it may feel like it if you’re going the other direction). If you trade around the NFP figures, don’t treat it a whole lot different than your day to day trading.
Watch levels, use proper money management and be careful.
FOREX ACTION
Until then, the daily euro is doing what it does best. Going one direction until it decides to go the other direction. The uptrend that defined Thursday and Friday last week stopped right on a trendline, 200 day moving average and .618 Fib retracement. I’m sure I can research and come up with a bunch of reasons why we’re down almost 100 pips from that level, but I don’t really care.
