The USD has been under pressure lately, with the US Dollar index carving out a series of lower highs and lower lows for roughly the last 55 days. With the US nonfarm payrolls numbers being released later today, volatility in USD pairs is virtually guaranteed. There are other labour market data releases as well, like the unemployment rate, participation rate, etc., which are all released at the same time. There is also a trade balance number to be released.

Now the United States is the only large economy that is currently in the process of tightening the reins. Nevertheless, the dollar is currently trading on the back foot. This sounds strange, as we know that money follows yield. This might be true to a large extent, but remember that no currency will outperform its counterparts on a relative strength basis forever. Of course, the global financial risks and other factors have kept back the FED from aggressively and speedily pursuing tighter monetary policy. When the FED moves slower than the market is expecting, we see that the dollar takes a beating. This has been a factor driving down the USD lately. Look at the US Dollar index below:

US Dollar Index Daily Chart

Yesterday, the USD gained some traction against some of the other major currencies, especially the GBP which was slammed when the BOE surprised the markets by expanding the scope of their asset purchasing program by 60 billion pounds. The same can not be said of their interest rate cut yesterday because this was widely expected by the market.

Of course, there are some currencies that gained against the USD yesterday, like the CAD and AUD.

Now to get back to the NFP event which is scheduled for today at 12:30 GMT; the number is expected to be lower this time around, with expectations sitting at 180 000 new jobs. The previous reading was 287000.

It is very difficult to pre-position yourself for the event, so let’s rather see how we can be prepared to react to the news release. This is of course if you are interested in trading the event, which is contaminated with risk, and laden with reward. Many people don’t like trading news events like this, but each trader has his own trading style, and appetite for risk.

Let’s look at a few currency pairs:

GBP/USD

GBP/USD Daily Chart

Perhaps it doesn’t look like a very impressive decline at first, but the pair surrendered an amazing 219 pips yesterday. As mentioned above, the BOE delivered a greater easing package than expected. At the moment the bias remains bearish on this pair, especially with the strong bearish daily candle that was printed yesterday. Although we can say that technically the pair is still in a type of a range, the bears are ramming against the support thereof. Besides this, it seems like the BOE is planning on further rate cuts in the near future, which is likely to further weaken the pound. Would I enter short right now? No, I would wait for a bounce in order to ‘get a better deal’. Chasing the market doesn’t offer an edge, but selling retracements does. This requires patience and discipline however, which is something that few traders possess.

Look at the aggressive decline on an hourly chart:

GBP/USD Hourly Chart

AUD/USD

AUD/USD Daily Chart

Here we can see that the AUD has held its ground pretty well against the USD yesterday. If we can clear the red resistance zone in the chart above, we might get an opportunity to enter a long position at a retest of the former resistance that would turn into new support.

EUR/USD

EUR/USD Daily Chart

This pair to me is just sitting in the middle of nowhere, with perhaps a bearish tilt to it.

And so we could go through all the pairs one by one, but the NFP results is something that could drive the FX markets in any direction. If we get a major disappointing number, coupled with rising unemployment for example, we could see broad USD weakness today. On the other hand, if we get an extremely good number, with favourable unemployment figures, we could see the dollar recover mightily.

Furthermore, we also have Canadian employment numbers coming out today, at the same time as the US NFP numbers. So be mindful of that.

May you rake in the pips today!