Participant

Today’s NFP was a huge miss at 142K vs. 201K expected. The previous months data was also revised to a weaker 136K.

Not only that, but average hourly earnings came in at 0.0% vs. 0.2% exp. Another major blow to dollar bulls.

On top of that, the only thing that kept unemployment from going up was weak labor participation.

Economists interviewed by WSJ had only to say, “..Nothing good to see here.”

China’s economic slowdown had sparked fears of a spill into an overall global economic slowdown, but the U.S. economy’s resilience led many participants to believe this trend of strong jobs growth would continue. Data today completely caught market participants off guard and this quickly led to risk aversion sentiment as a key theme. With the Fed’s policy being data dependent, an October rate hike has been taken completely off the table by traders and other month rate hike bets also pushed back.

The question now is, where do we go from here?

There is a lot of indecision in the markets and the big players are staying out until a clear and certain catalyst drives the market forward.

Personally, I think we may or may not see some risk aversion sentiment continue. I really don’t know. Eventually I believe it will reverse and dollar bulls will reinstate themselves. Even if the U.S. Is slowing down, it is still the strongest performing economy in the G7. Another thing to note is that this was only one months data. The next months data will be even more important after what happened today.

I also think uncertainty will continue to reign in markets and volatility/volume will stay low. Macro trend following strategies should be put on hold while range trading strategies and short-term flow following trading strategies may be performing better. I personally am having great success trading a strategy similar but modified Dual Hedging Grid Strategy Steve has outlined on this site.

I’m curious for others thoughts and opinions on what they think could potentially happen next, especially you Steve!

 
Keymaster

The poor fundamentals coming out of the US were a surprise for sure but what is interesting is that the dollar didn’t sell off to anywhere near the levels we were predicting. Whether this is a delayed response or not is hard to say. Fed fund futures were implying a 30-35% chance of a rate increase by year end so clearly many participants haven’t ruled it out completely. Even so this is still a drop of around 10% on last month (on last checking).

The US isn’t the only economy that’s dipped with the latest reports showing that Europe and the UK are also entering a slowdown. Service growth is displaying particular weakness and inflation in the eurozone has also gone into reverse, which together doesn’t make for a positive outlook.

So EUR and GBP have their own problems and I don’t see them outperforming much on a relative basis unless we see some big divergence in the data. That said we’ve seen GBP/USD turn up this morning with more determination, this capping a bear run over the past couple of weeks.

 
Participant

Thanks for the reply Steve!

The forums here aren’t as buzzing as they deserve to be, but you have a great site here and I’m hoping we can bring some smart traders here who understand market dynamics rather than your average uninformed and consistently losing retail traders that crowd the normal forums like FF and Babypips. Your institutional experience is a great plus and if you ever need help with pushing out FX news and economic events articles or technical road maps let me know. I really enjoy the articles you’ve written and personally starting from the retail space, it’s great to find someone who actually knows the market structure and order flow analysis.

Your analysis is fairly spot on and even with the recent less hawkish than expected FOMC meeting and weak NFP, the U.S. economy is still performing better than other 2 countries. The problem with going long USD is timing and I think it’s best to wait for strong demand to show itself before entering.

I’m watching EUR/USD, kind of iffy about about GBP/USD the way it’s acted. Draghi definitely won’t want a strong euro and has stated the ECB is willing to act if needed on further stimulus.

All eyes now are on a December rate hike. There is just so much indecision right now as China fears cause risk aversion, only to switch the next day. Our best choice now is to follow the flow. The market will be focused on USD retail sales and a weak number could really mean China’s slowdown is erupting into the U.S. Economy. Technical indicators continue to point to bearish USD moves, but there are fundamental reasons to stay out or go long USD in many pairs. It’s best to wait for the highest probability scenarios to line up.

See you guys Monday!

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