NFP Set Up for Action Aplenty

September 2, 2016

Last night’s ISM Manufacturing PMI miss encouraged USD longs to lock in some profits, capping the recent bullish run that the currency has been experiencing. Heading into one of the more important NFP releases in terms of implication for Fed monetary policy direction, this however isn’t a huge surprise.

Throughout Jackson Hole, Yellen has even staked a case for one, if not two, rate hikes in 2016. While the September hike is most probably not a realistic option, the expectation on the back of the chatter is all that matters for markets.

Tonight’s NFP report is so important because markets (via the Fed) are just about saying that if the number is stellar, then the Fed will hike twice. Of course if the number beats, the USD will spike. On the other hand, a miss will surely disappoint a market that is being forced to price in the double hike, whether it’s realistic or not, and USD will most likely get destroyed.

Turning our trading focus to the majors, GBP/USD has been the biggest benefactor to USD profit taking before the release. So it turns out that the Brexit hangover is starting to fade away as data suggests the doomsayers were once again not on the money. Who would have thunked it, huh?!

GBP/USD 4 Hourly:
160902_gbpusd_4hourly
Click on chart to see a larger view.

We’ve been watching this GBP/USD level since the post-Brexit drop and low and behold, we got another bounce. If you bought the re-test into that zone with a 20 pip stop just below, you are currently sitting on a risk:reward ratio of 10:1. Not too shabby at all!

As always from here, there’s no point in ruining your month by holding short term positions through NFP. Be smart, understand the type of position you’re taking and manage it accordingly.

Tonight’s release is going to have major implications to both the long and short side. This isn’t the type of release that has a clearly overstated bias that is set up for disappointment in one direction. For me here, trying to pick a direction with the risks on both sides of the market as they are, just isn’t worth it.

Whichever number the Bureau of Labor Statistics roulette wheel falls, there’s going to be action aplenty. Stay safe out there!

———

On the Calendar Friday:
GBP Construction PMI

CAD Trade Balance
USD Average Hourly Earnings m/m
USD Non-Farm Employment Change
USD Unemployment Rate

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Dane Williams – @VantageFX

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