NFPs Adds an Element of Risk to Our Trading

Is the US non-farm payrolls (NFP) report critical to the future of the US economy and markets? No. It will be many, many months before the country is back up to the level of employment that it had enjoyed before the financial crisis. And, in this time frame; economists, policy officials and market participants see little threat of the general trend significantly shifting from one monthly release. Yet, that doesn't mean that this indicator won't have a meaningful impact on volatility. In fact, there is a high probability that this indicator has leverages price action. This influence comes via risk appetite trends which have been particularly active the past 48 hours as a break in euro selling and bound from the S&P 500. Should a positive jobs report come up, it could play to the recent swell in confidence. Alternatively, if it disappoints; it could help curb optimism but is less likely to establish a trend on its own.

Laying out this potential volatility threat, it is clear that there is some risk in pairs that are sensitive to risk appetite trends. As it would happen, many of my setups are just that. The most exposed pairs start with the AUDUSD short that I recently widened my stop on to 0.9825 (entry at 0.9670). I like this pair medium-term after it broke its rising trend channel and took the critical move on a head-and-shoulders pattern; but there is a risk of being whipped out (I'd rather be whipped out than continuously move my stop on a reversed trend - realizing the turning of the tides when it is too late). In the same vein, the AUDCAD short is less exposed to risk trends. That said, the risk trends and the presence of Canadian employment data could make the 0.97 first objective difficult to reach. For the loonie, I was knocked out of my reduced, long GBPCAD setup at 1.57 when that pair clearly broke its range. I'll see whether EURCAD can hit my second target to knock out the rest of the position at 1.3280. New to the mix, I have just added a reduced, long USDCAD setup from 1.0035. Though it entails risk, a correction after such an aggressive decline is likely; and a major break of parity would be difficult to muster under most circumstances and particularly troublesome for a pair that shares an economic future. My initial stop and first target are 100 points from entry.

Looking to offset some of my dollar exposure on my AUDUSD short, the NZDUSD long has already hit its first taget at 0.7525. A trailed stop with a second target 150 points away will decide the rest. Elsewhere, I'm just waiting for GBPUSD to either hit its second target or trailing stop. A new sterling exposure that is purely technical in nature and more risky is the long (and significantly reduced) GBPAUD long from 1.5980. Based on a wedge and working with a 90-point stop and first target, this could be a quick setup.