The event markets have been waiting for arrived today and, indeed, currencies reacted strongly. Employment data is still a market mover and likely to remain for some time. The Non-Farm Payroll report came better than expected, showing a net loss of 54K jobs versus 100K forecasted. However, the private sector 67K new positions, better than the 41K estimated. These news have been received enthusiastically, as if everything was great again and the recesion all but gone.

When we look closer, though, not all is well. The unemployment rate itself rose to 9.6% from 9.5%, not a good sign. Many analysts claim that for the recovery to be sustainable, the private sector must create at 100K new jobs a month and keep doing it for an extended period. With about 15 million people unemployed, it will take a very long time to bring the unemployment level to a more modest level. Next month today’s number will likely get revised, could be up or down, so right now one can only say that this was one positive sign, where many are needed. A little too early for a victory cigar. Interestingly, even the currencies tapered the optimism very fast.

One of the currency pairs on my watch list, also mentioned in the Currencies waiting for the NFP post, was GBP-JPY. I was watching hourly support/resistance levels for breakouts, with the exception of the announcement itself. The beast moved strongly on the news, but failed to follow up. Once the hourly candle close, the GBP-JPY sold off. In fact, no currency showed strength after that, at best they stayed within few pips of the high recorded on the NFP release. No continuation – not a good sign. Of course, that could be due to a Labor Day weekend, with traders shutting down early, but still a red flag.

Trading must have been challenging for those who try to exploit fundamental announcements.  As the 1M chart shows what happened on this platform, the price gaped about 65 pips, which means that most orders would have been slipped and filled at much worse price level. Since the price reversed direction shortly after, it would have been next to impossible to make any here. Perhaps just few pips. On other platforms things could have been a little better, but not by much. Difficult proposition. Thankfully, only a handful of fundamental news releases carry this kind of punch, otherwise trading would even harder as it is.

I spent most of the time leading to NFP trading small moves on short term charts, just like mentioned yesterday. Couple of trades in AUD-USD, around the small Head and Shoulders discussed in last post, few other breakouts, like the one in EUR-JPY above. Even though the gains were small, I am rather satisfied with them, because markets did not move enough for larger ones. All said it was a decent day. Hope everybody has a great Labor Day!

Mike K.