Today's NFP question

[Nazenail]

I watch the NFP information very closely. I saw the market react, the way I see it, in a very strange manner this morning.
For at least the past year when the news would hit, the market would move very sharply, reflecting the new information. Then it slowly trends in its new direction for a couple of hours until the market closes for the week.
Today, when we had especially strong employment numbers, much higher than expected, (337k vs 195k expected) the dollar only gained about 50 pips, within seconds lost the gain, and then continued to lose another 100 pips.
What was different about today and it's numbers?
Why would very strong employment numbers today cause the dollar to loose value?

[MickMason]

Courtesy of Reuters:

FOREX-Dollar sags to record low vs euro as sentiment sours

NEW YORK, Nov 5 (Reuters) - The dollar dropped to record lows against the euro on Friday, succumbing to negative sentiment and erasing all of the U.S. currency's earlier gains following a robust U.S. October employment report.

Technically driven trading also played a role in the dollar's fall.

The euro surged above $1.2900 and then breached the prior record high around $1.2927 hit in February, reaching new record peaks around $1.2950, according to Reuters data.

The dollar index, a measure of the U.S. dollar's performance against a basket of currencies <.DXY>, fell to a nine-year low. The U.S. currency also fell to six-month lows against the yen and 6-1/2 month lows against the Australian dollar.

Traders were struck by the dollar's inability to sustain a robust rally fueled by the strong U.S. economic data. An undertow of negative dollar sentiment driven by the U.S. current account and budget deficits made currency investors keen to buy euros, analysts said.

"The price action today is nothing short of stunning," said Richard Franulovich, senior currency strategist with Westpac Banking Corp in New York.

"Net-net, given the sharp U.S. upward revisions to payrolls, for the euro to punch higher to fresh highs is nothing short of spectacular. I think this is a pretty good guide at just how entrenched negative sentiment is toward the dollar," he said.

Late morning in New York, the euro was trading at $1.2935, up about 0.5 percent on the session.

Against the yen the dollar was trading at six-month lows around 105.54 yen, down about 0.4 percent.

Against the Swiss franc , the dollar was trading at eight-year lows around 1.1806 francs, down about 0.5 percent.

In its broad-based fall, the dollar also weakened to a fresh 3-1/2 month low against the British pound.

Sterling was up about 0.5 percent at $1.8531.

"We've seen a shift from cyclical to structural issues such as the twin deficits" that are hurting the dollar, said Shaun Osborne, chief currency strategist with Scotia Capital in Toronto.

"Although it was a pretty good payrolls report ... I'm not too surprised that we had a sell-off. I think people are looking for levels to get short dollars again, and they used the initial reaction to the jobs numbers to load up again" (with other currencies), Osborne said.

"It looks like we are on the cusp of another pretty decent move lower (for the dollar) over the course of the next few weeks", he said.

Earlier on Friday, the dollar had rallied after the U.S. jobs report appeared to dispel some doubts about the power of the U.S. economic recovery.

The report appeared to make a Federal Reserve rate hike in December, which had been questioned recently, once again quite likely.

The report showed the number of new U.S. jobs increased at the sharpest rate in seven months, with a gain of 337,000 non-farm payrolls jobs in October. The number easily exceeded economists' forecasts of a rise of 169,000. However, the jobless rate edged up to 5.5 percent, above the 5.4 percent forecast.

(Additional reporting by Gertrude Chavez, Jamie McGeever and Andrea Ricci in New York).

[Nazenail]

Wow! Thanks for the article. Can you imagine what would have happened if the payroll numbers were bad??

[MickMason]

Originally posted by Nazenail
Wow! Thanks for the article. Can you imagine what would have happened if the payroll numbers were bad??

lol, I guess the dollar is friendless right now, someone's bound to take pity on it soon, probably the BOJ!

What gets me is no-one seems to be unwinding all these dollar short positions, the whole world and his wife are short dollar!

Mick

[dwt1020]

Originally posted by Nazenail
I watch the NFP information very closely. I saw the market react, the way I see it, in a very strange manner this morning.

Today's action pretty much duplicated the china's rate change spike a while back. I guess we should have taken that as a clue..
I was expecting/hoping for a wider/lower range to get long the eur and gbp.

All to often these spikes, are merely hic-ups in what is otherwise "Technically driven trading""

While todays moves seem to be a surprise to many traders,
"""The price action today is nothing short of stunning," said Richard Franulovich, senior currency strategist with Westpac Banking Corp in New York. """"

It is right in line with the analysis I follow.
"" Comment: Pushing on up again to January’s high at 1.2900. Today we should test February’s high at 1.2930. Expect consolidation below here this morning, noting that while overbought, the market is not in disarray. Yesterday’s close above 1.2850 should ensure a move to new all-time highs later today, which in turn should ensure a strong weekly close which will see follow-on Euro buying next week. First target the psychological level at 1.30000. Second target 1.3200. Next target 1.3500, the height of this year’s ‘triangle’ consolidation. Remember that in thin end-of-year markets prices can move a lot further and faster than is usually the case. There is also the question of whether we should be making up for the time lost over the summer months.

Strategy: Buy at 1.2850, adding to 1.2800; stop below 1.2700. Cover longs at 1.2900/1.2930 re-buying on a sustained break above here for 1.3200 further out. """""




gl & gt..

d

[teddly]

All the dollar shorts sound like an opportunity.

Has anyone read some of the research on stops clustering near round numbers and the self reinforceing behavior of cascading stops?

The big banks are privy to were all the stop orders of their customers are and could place orders ahead of them in this kind of scenario.

Does anyone know of any ideas, web sites, or other resources on how this market structure could be inferred by us little guys and exploited?

I'm thinking of longer historical time frame support or resistance areas near round numbers. How can we know the most likely place the sheep are clustering their stops (typical/common strategies)?

From what I've read the BoJ triggers these kind of cascades in it's effort to keep the Yen weak - of course they probably lose a lot of money doing it.

Researching this is low on my to-do list right now but it would be nice to know where to go looking when I have time.

Thanks,
Ted

[MickMason]

Originally posted by dwt1020


Strategy: Buy at 1.2850, adding to 1.2800; stop below 1.2700. Cover longs at 1.2900/1.2930 re-buying on a sustained break above here for 1.3200 further out. """""

lol, the time to post that was Thursday morning not Friday afternoon after NFP

[dwt1020]

Mick,

Would you have place that trade...?????

I almost never trade those recommendations as they s/l 's are usually 100 pips or more and they are rarely right. But Fridays recos were right on.... it's nice to know what some of the Banks are thinking...

It's available at www.mizuho-cb.co.uk. -> research


gl & gt

david