Decoding the Dollar: NFP insights and tactical approaches for Traders

The NFPs are nearing again, and traders will always try to make the most of it. Yet, will the markets experience an explosion in volatility as usually touted? I doubt it, and here is why.  
 

The EUR/USD pair declined by 827 pips from its peak without any significant correction. A similar trend is evident in GBP/USD, while USD/JPY surged almost straight up. Previous demand levels, which drove the EUR/USD rate upwards and were expected to support Euro buyers, seem to have been overlooked. Concurrently, the US dollar made impressive gains against gold, while the US ten-year government bond yield climbed to a notable multi-year high of 4.87%. Essentially, there's been a pronounced shift in portfolios, almost bordering on panic, as investors rapidly moved away from bonds and in favour of the dollar.  
 

However, the sustained nature of these moves means that the current risk-to-reward ratio for buying the dollar for trades spanning 1 to 7 days is less than ideal. Industry professionals and short-term traders who recently acquired the dollar are cognisant of this. Still, there's a reluctance to realise profits or bet against the prevailing trend. This type of phenomenon is typical heading into a key event like the NFPs, and what we tend to see is a whiplash movement, hurting bulls and bears, just for the market to turn on its trend directly on Friday, or early Monday, with no apparent connection to the data release itself.  
 

Data also points to the same 
 

In cases where the actual NFP was above the forecast, out of 7 instances, the EUR/USD ended four times in a bullish trend and three times in a bearish trend, four hours after the news.  
 

In cases where the actual NFP was below the forecast, out of 5 instances, the EUR/USD ended 3 times in a bullish trend and 2 times in a bearish trend, during the same time frame. 
 

What is expected on 6 October? 
 

On 6 October, economists expect the US economy to have created 171K new jobs, slightly down from 187K. At the same time, the unemployment rate is expected to have declined to 3.7% from 3.8%.  
 

Tactical considerations 
 

In my gold report, published last 20 of September, I said: “… a break to $1884 could send the price to a $1800 low.“ 
 

Today, the price has almost reached this level and resting above the February low of $1805. The 14-day RSI is also at oversold levels. Ideal levels to buy according to traditional technical analysis, yet I anticipate the market might attempt to trigger stop-loss orders slightly beneath $1805 before making an upward move. I, therefore, wait for the market to reach a level below $1805 but above $1764, before turning bullish and expecting the price to reach $1859.  






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