FX Outlook for 7/8/11: Pre NFP

I'm expecting tomorrow to be the biggest trading day of this week, notably because of US employment and payroll data. CAD also has some important employment data, so there should be some fireworks early on tomorrow morning in all markets.



Last time the NFP came out in May we saw very disappointing results (added 54k with expectations of 170k, unemployment rose to 9.1%). Afterwards, just about everyone sold dollars for the rest of the day. This time around, were expecting an increase of at least 100k with some expecting the number to be as high as +175k. Since there has been a string of good US data lately on top of recent strength in the US markets, I believe the markets have already accounted for these payroll and unemployment figures, so in order for the data to be bullish for the dollar they must come in significantly higher than expectations. Sure, we will probably see a nice pop even if they are in line with expectations, but it may not carry through the day. On the other hand if we see data well below expectations, I'm expecting a hard dollar selloff. The SPY and IWM are both near significant resistance and have just seen strong runs in the past two weeks. There could definitely be some panic selling in US markets if bad numbers come in. I have a hard time seeing either the SPY or IWM moving through resistance unless we see some extremely good numbers, but I'm not expecting it. The dollar index, which is still in a very long term downtrend, looks to be flattening out a bit and showing a little bit of strength.



Some predictions for dollar-denominated pairs:



The EURUSD has been consolidating on the daily's for some time now, and off line data could set us off in one direction or the other. The euro has been struggling to stay afloat as the ECB raised key interest rates and Portugal received a downgrade earlier this week. If the numbers come in at expected or higher, I think we’ll definitely start selling off. The next support looks to be around 1.4140, so that could be a good initial target.



The AUDUSD has moved higher in the past two weeks due to US market strength and investors seeking higher yields. If dollar strength continues, this move higher could very well continue. We’ll definitely be running into some traffic on the upside though, so keep that in mind. If data comes in weak, there are at least 100 pips of possible downside that we could see today, depending on how much we come up short. Short-term downside support looks to be around 1.0725, then 1.0680, then 1.0650.



Another pair I’d be interested in in the long term if we see good US data is the USDCHF. This pair has been trending down forever and while it hasn’t quite broken out of the downtrend yet, it may have found some support near 0.8325. This is a very well-defined and obvious trend that people will be looking at, so I think there is nice upside potential if we can break out. Strong NFP numbers may be a perfect catalyst for this to occur.



All of the dollar denominated pairs will be in play this morning; these are just a few I will be following a little bit more closely. I always try to avoid any exposure before huge data like this, and I like to wait 15-20 minutes at least to let any type of kneejerk play out. Don’t chase moves you’ve missed, just be patient and wait for pullbacks. And finally, remember to listen to the market and take what it gives you! Be flexible, because it’s easy to get burned if you’re stuck on a particular idea. Any questions, please feel free to ask. Happy Trading!

FX Outlook 7/4-7/8

Alright, after a little camping trip last week I'm back from hiatus and ready to trade this upcoming week.  Since Monday is Independence Day here in the States, I'm expecting volume to be lighter across the board.  The US equity markets showed a very strong rally last week, but most of it was on lower volume and we're now entering the resistance area near this year's high's between 135 and 137 in the SPYs.  I'm not expecting a ton of movement in the US markets ahead of Friday's NFP data, but I think those numbers will be very important for the markets in the coming months.

EUR/USD

The euro gained on the dollar last week and appears to be out of immediate danger since Greek austerity measures were passed and are in good position to receive approval from the IMF for their next tranche of bailout money.  We look to be consolidating a little bit on the daily chart, and I expect most people will be trading the news this week.  As QE2 comes to an end & the Eurozone is pulling itself together at least in the short term, the dollar needs some strong numbers this week or it may continue to slide.

GBP/USD

The dollar also gave some ground to the pound last week, but the pair is still in a downtrend that's looking a little bit steep on the daily's.  Again, I think the beginning of the week may be a little bit slow but the BoE rate decision and NFP's at the end of the week should be a catalyst for movement.  I think we'll continue to move downwards in the short term mainly on pound weakness rather than dollar strength.

AUD/USD

Greek austerity has helped the aussie dollar a lot in the past week as many people's appetite for risk has returned.  Another strong week could put it up near yearly high's against the dollar, and we're still in a long term uptrend dating back to about a year.  This week we'll be seeing a RBA rate decision and employment data, both of which need to come out at or above expectations to keep this short term upmove going.  Anything under expected could lead to a bullish outlook for the aussie.

USD/CHF

This pair has been downtrending forever now, but we may have put in a little double bottom 0.8315.  I'm expecting to consolidate between this level and the downtrend line, but the mid-term outlook might hinge on this Friday's NFP's.  Also, look for some minor swiss data this week that may cause some movement, but Friday's numbers will be the most important.

That's probably all I'll really follow this week, maybe the NZD/USD as well since the kiwi has GDP numbers coming.  As always, the market's opinion is much more important than my opinion.  Trade what the market gives you, not what you think the market should do.  Hopefully I'll trade a little better than I played golf today (lets just say I definitely got my money's worth with how many swings I took), and I'm hoping to get one more post up this week at least.  Have a good holiday if your in the US, and good trading to everyone this week!