Forex Week Ahead: SNB, ECB & FED In the Spotlight

Following last week’s ECB Meeting and the US’s Non Farm Payrolls figures, forex traders will continue to be focused on central bank actions. In the EU, after Draghi’s plan that called for “unlimited” bond buying was finally made official, the question for traders is whether it will get German backing at Wednesday’s Constitutional Court Ruling. The current feeling is that the German’s are on board with the Bundesbank endorsing the project. Although the consequences of the ECB’s bond buying is higher inflation, at this point the realities are that Germany’s key manufacturing sector is gaining from the existence of the Euro.

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Forex Trading Today: NFP Preview

Coming Up Today

• UK Manufacturing Production
• Canadian Employment Change
• US Non Farm Payrolls

The ECB Meeting came and went yesterday. The big surprise was that Mario Draghi announced that the central bank had cut its GDP forecasts for the EU for 2012 and 2013. All that other bond buying stuff was as expected. In any event, on the news, the EURUSD tanked from about 1.2650 to 1.2560. But, that move was short lived as Forex traders quickly ignored the EU and took their cue from equity traders that were going bananas on the strong ADP Employment change and Initial Claims figures that were released. The news caused the S&P 500 to hit four year highs. As a result, rather than care about the cut in GDP forecasts, Forex traders put their attention on the fact that the ECB was in fact going to expand its bond purchasing program (big surprise!) and positive US news. The change in sentiment triggered an overall risk rally that continues this morning.

(On a side note, I was asked by a friend if it’s time to short the S&P 500 on such a large move higher. This was my quick take “Personally, I wouldn't short,not enough reasons to sell. Market looked ready to tank and then took off. That shows that traders are looking at good news and ignoring the bad news. You need to see a few cracks first, before you short.” Just wanted to add that little comment as large moves always bring out the urge to do a reversal trade, which for most traders can become a mine field.)

Yesterday’s moves bring us to today’s Non Farm Payrolls. Based on last month’s better than expected data and yesterday’s ADP figure, it’s safe to say that Forex traders are expecting to see another positive result. Two items to watch are the USDJPY and Gold. The USDJPY spiked higher from around 78.40 to a high of 79.00 on the ADP news yesterday. Similariliy, prices of Gold fell as the dollar strengthened against other safe havens. However, until this morning, Gold’s weakness was minimal. As such, prices of Gold could see a sharp rally if the NFP fails to impress and expectations of QE3 entering the market. On the other hand, the USDJPY continues to look like a solid buy on positive US news. Although the Bank of Japan is setting pat itself and isn’t stimulating, it appears like Forex traders are looking for excuses to short the yen.

Charts to Watch

EURCHF: Back from the dead, the EURCHF has sprung to life over the last few days. Currently the pair traded above 1.2100 this morning and has found support on its way. Traders should keep watching to see if another base forms in the pair to reveal support that was sitting at 1.2000 has climbed higher.

Buying the EURCHF as Price Floor Rises

Rolling theEURCHF Dice with the May be I am getting a little ahead of myself with the EURCHF in going long but there’s definitely something going on and the 1.2040 level is getting defended.  As such, I am taking a long position at 1.2070 as it trades to its highs of the week. 

Yesterday, in What’s Up With the EURCHF?  I wrote that the trading action made me want to equally short and go long.  On one hand price spikes in the past five months created solid short trades while on the other hand, bid kept stepping up and the SNB’s Thomas Jordan was out earlier the week stating that they would continue to be buyers of the Euro and protect the 1.2000 price floor.

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Closing on USDJPY Trade at 79.00

Just closed one of my two USDJPY long positions at 79.00.  This was the buy at 78.49 that was placed last Friday ahead of Bernanke’s speech to Jackson Hole.  While I mentioned over the weekend that I was inclined to wait with the position until tomorrow’s NFP results were released, today’s ADP upside surprise has led the USDJPY higher.  Therefore, with a nice gain in place, I didn’t want to take the additional risk of holding longer.

What’s Up With the EURCHF?

In the crazy world of the EURCHF, the pair continues to hold it gains from yesterday even as the Euro is selling off after comments from the ECB’s Draghi that the central bank had slashed their GDP forecasts. 

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