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This week has been quite strange in forex trading. The risk factor played a major role in trading. But at least the behavior following the NFP release was normal.

On Tuesday, Pending Home Sales in the US were quite high, much better than expected. Instead of being unchanged, the figure rose by 6.3%. Such a good figure in the US usually results in stronger dollar. In other cases, data can be  ignored.

But in this case, the dollar fell (!) immediately after the release. I was arguing that the data is just ignored, and the downtrend of the dollar, that began before the release just continued.

Well, my commenters corrected me: the data was not ignored, it was just interpreted differently. In days of crisis like these, good economic news mean stability, which in turn means that traders can take a risk on “less safe” currencies – Risk Appetite.

The US dollar and the Japanese Yen are considered “safe” currencies in times of trouble. So, if the news would be bad in the US, the dollar would have strengthened – Risk Aversion.

By the way, also Monday’s ISM figure caused the same risk aversion behavior.

Non Farm Payrolls Change

Well, after learning the lesson of risk, Friday’s Non Farm Payrolls came out really bad, 598,000, much worse than consensus, and much worse than my optimistic forecast for January 2009’s NFP.  

This made the tables turn. Against the dollar, and back to “normal behavior”. The dollar lost ground across the board.

The strongest impact was felt on the Canadian dollar. USD/CAD leaped above a resistance line of 1.25. This happened after employment data in Canada was much worse than expected. But this collapse of the Canadian dollar didn’t hold as NFP was released. USD/CAD fell by more than 300 pips, and even broke the support line of 1.22.  

Another notable currency pair that made a big move is NZD/USD. I’m following this pair, after seeing it dive below support 0f 0.5150. Well, also here, NFP took it way above the (now) resistance line, and NZD/USD skyrocketed to 0.5315.

Next week, I hope we’ll see the “normal” behavior control the markets. It’s much easier that way…

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