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May 5th, 2013 at 6:05 am

Wicked Trading on Friday.

As it is typically the case, the employment data from the USA proved to be a market mover on Friday. The Japanese Yen was the biggest loser on the day, falling sharply versus all other majors. In couple of instances that translated to 200 pips range for the day. This activity could carry over the weekend, resulting in opening gaps, often decent trading opportunities. Something to look for in the next few hours.

While these moves were one-sided and directional, that was not true for the European currencies. The Euro, the Pound and the Franc became volatile even before the announcement, causing consternation among traders. Everybody is trying to explain why it happened, calling it “banging the beehive”. Most market makers withdraw liquidity before major events, like the NFP, and “banging the beehive” attempts to trigger enough standing orders during this thin period to push the price decisively in one direction. If the following data release also lines up with the “forced” direction, the response could be an even great market swing. Unfortunately for those trying it on Friday, that was not the case.

It seems that early market participants expected the employment numbers to be positive for the EUR-USD. They were wrong, as the reaction to the news crashed the price, certainly stopping out the longs. To add insult to injury, the Euro recovered soon after, rallying 120 pips. This development underscores the dangers of trying to predict the outcome of a major fundamental announcement and putting money on the line.

Sharp price swings of this nature distort short-term charts, making it difficult to look for trading clues. That is especially acute going into the weekend, when the sentiment can change at the open. For all practical purposes, the affected currency pairs closed neutral on Friday and need to show more price development before “educated” trading decisions can be made. With this in mind, I will look for trading opportunities elsewhere.

The USD-CAD closed near the low for the day, which suggests a short-term continuation after the open. At the same time, I would expect a bullish reversal after initial downside movement. If the hourly chart develops a convincing bullish reversal candlestick patter between 1.0070 and 1.0040, it should create a good buying opportunity. The objective here is modest, in the range of 30-40 pips, but probabilities for a successful trade are good.

The EUR-GBP has pulled back from the high of 0.8814 earlier in the year shedding over 400 pips. So far, it is only a pullback within the main uptrend on the daily chart, but it could change into a reversal soon. Currently the price is in a narrow range between 0.8397 and 0.8497. A move through either one of these levels could easily indicate direction of the next main swing in this pair. There might quick 100 pips or so on a breakout either way. Have a great trading week!

Mike K.

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