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Unpredictable Markets: When Better-Than-Expected US NFPs Don't Boost the Dollar

Alejandro Zambrano Alejandro Zambrano 05/06/2024
Unpredictable Markets: When Better-Than-Expected US NFPs Don't Boost the Dollar Unpredictable Markets: When Better-Than-Expected US NFPs Don't Boost the Dollar
Unpredictable Markets: When Better-Than-Expected US NFPs Don't Boost the Dollar Alejandro Zambrano

The outcome of economic data should have a straightforward impact on market prices. But, the data says otherwise. Let us take a look at recent data and see what patterns and strategies we can develop.
 

Gains and losses in EUR/USD do not match the beat or miss of NFPs
 

Better-than-expected US NFPs indicate that the US economy is performing well. Typically, higher-than-expected outcomes strengthen the dollar, but that has not been the case recently.
 

In seven out of the last eleven reports, the US economy did better than expected, but the EUR/USD reacted haphazardly. 43% of the time, the pair ended higher by an average of 18 pips, while 57% of the time, the EUR/USD ended lower by 46.1.
 

The situation was clearer in the case of missed expectations. EUR/USD ended up by 84 pips three out of four times. At the same time, it ended lower by 9.4 pips in 25% of the cases.
 

While the sample is small, it does suggest that the most evident reaction with the most significant moves happens when data fails to meet expectations.
 

What other trends have been emerging?
 

In recent months, the initial move in the EUR/USD has been negated, and we have seen the EUR/USD move close to its initial value. This has happened in all months this year except for February. It also happened in December, October, and September. In other words, in 63% of the time, the initial reaction, i.e. a move up or down, is being fully retraced.
 

The most extensive 4-hour range was in January 2024, with 119 pips, while the average range in the four hours after the NFPs was 80.7.
 

Two distinct strategies can be implemented based on the recent data. The first one was to buy the EUR/USD pair based on US data, which fails to meet expectations. The price is expected to reach a high of roughly 84 pips in the four hours following the report.
 

The second strategy is to fade the initial reaction in the price, and doing this as we approach a pips change of plus/minus 80 pips from the price just before the report is released, with a stop loss at 40 pips above/below that range maximum. For example, if the EUR/USD pair was trading at 1.1000 and then rose to 1.1080, a short position would be initiated around 1.1080 with a stop loss at 1.1120 and a take profit near or at 1.1000.
 

Will these strategies play out? We do not know for certain, but it does provide a framework. We also need to consider the outcome of Thursday’s ECB rate meeting, where the bank is anticipated to cut rates, and the price action that follows. Using this improves the chances that we make an informed trading decision.
 

What is your take on tomorrow’s NFP, and will you be trading the EUR/USD or any other market? Go long or short on up to 4,000 instruments with ThinkMarkets. Log in to trade now.

Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.

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Any opinions, news, research, analyses, prices or other information contained on this website is provided as general market commentary and does not constitute investment advice. ThinkMarkets will not accept liability for any loss or damage including, without limitation, to any loss of profit which may arise directly or indirectly from use of or reliance on such information.
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