Forex Trading Analysis – Non Farm Payrolls Momentum Continues

What We Are Watching

• ·         US Non Farm Payrolls Follow Through
• ·         Australian Interest Rate Meeting (late Monday/early Tuesday)

Before the “big game” the Non Farm Payrolls offered us the “big number.” Just like the Giants pulled off a surprising thrilling victory, the Forex markets were oohing and ahhing on Friday after the huge upside NFP surprise.  Following the figures, the dollar took on a bullish tone as it rallied against both the Yen and Gold.  As mentioned last week, our opinion was that the Forex market, and US equities for that matter, had been sitting around and waiting for that next big thing to determine direction.  Forex traders seemed to be at equal opinion of whether the late 2011 dollar momentum would continue or not. 

Overall, we still aren’t convinced that the FED is ready to hold back from applying further monetary easing.  They pretty much signaled that it was a foregone conclusion regardless of how the economic indicators play out.  They may not elect to start QE3, but could use one of their other cards as well.

Nonetheless, as we wrote on Friday, we believe that the direction triggered by the Non Farm Payroll results will cause momentum to continue for the next few weeks.  As a result, we are expecting the dollar to outperform throughout February.  In a similar notion, US equities could see a buildup of momentum as retail cash that has been exiting equities over the last few years reenters into stocks.

Twitter

For real time trading ideas, SwiftTick has launched its Twitter account. On Friday, we highlited that the USDJPY looked like it was building a base just above 76.00 and was a long candidate going into the NFP news.  The trade turned out to be a winner as the pair has jumped to 76.70.  We currently remain long with a view that the current dollar momentum could squeeze it above 77.00.  In a similar trade, we bought the EURCHF at 1.2053 as a correlary trade on the Yen weakness.  The theory was that the Yen weakness was indicative of a rotation of safe haven money back towards the dollar.  Such a move could have a ripple effect on the Swiss franc and lead to a possible move higher in the already heavily shorted EURCHF. Updates of these trades will appear regularly on Twitter.

EURUSD  

The EURUSD fell from just below 1.3200 following the NFP results to a low of 1.3060.  The pair did manage to rally on the overall risk rally on Friday to close at 1.3150.  Currently, the dollar momentum has returned in overnight trading.  As such, the EURUSD is back below 1.3100 to a current 1.3080.  Looking ahead, the question is how the pair reacts as it nears Friday’s lows.  If it finds support at 1.3060 it will indicate that Forex traders continue to be interested in the pair on weakness and may lead to an extended bounce in the EURUSD.  However, if 1.3060 fails to hold, it could reveal that Euro bulls aren’t willing to get in the way of the dollar momentum.  Such a buyers strike could trigger selling pressure to intensify, with a move below 1.3000 likely.

Intraday Support/Resistance  1.3060/1.3200