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Shifting Short-Term Expectations to Long-Term Ambitions Ahead of NFPs

Shifting Short-Term Expectations to Long-Term Ambitions Ahead of NFPs

2011-02-04 04:22:00
John Kicklighter, Chief Currency Strategist
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Tomorrow is the big day; but I think it is important to keep realistic expectations. The NFPs themselves have not not deviated that dramatically over the past months; and December's release was as remarkable as it was due to overblown expectations following a misleading ADP report. We don't have the same level of speculation this time around. However, we do have a more sensitive market. Despite the quick recovery for the S&P 500 after its bearish channel break last week; the shadow of doubt has been cast over the market. Each additional push higher for speculative interests requires greater and greater fundamental leverage. This means that the market itself (risk appetite) is growing heavy; and negative sentiment could quickly overwhelm with a catalyst or even without warning. I'm keeping an open mind about potential outcomes following the NFPs specifically and further trend development with the week ahead.

....

For NFPs, I'm looking across the majors for potential; but I'm focusing a few that look particularly interesting. At the top of the list is probably GBPUSD. Fundamentally, the sterling is rallying on interest rate potential where this actually represents a serious problem for economic stability where growth is expected to struggle in the near future. Technically, this is a very enticing pair. There may not be a very clear entry point; but the possiblity of a double top reversal from 1.63 opens the doors to significant momentum. EURUSD is another attractive pair with better guidance on entry with a drop below the short-term rising trendline now at 1.36. This pair has the added complication of the euro's reaction to the EU's meeting about the bailout effort. Along similar lines, USDCAD is looking at an even greater measure of volatility with Canadian employment on deck as well; though here we need to cover significant ground before we are on a real breakout (near parity). And, though my efforts with USDJPY are much longer term, I do recognize that wedge pattern over the past three months as an immediate opportunity near support around 81.25.

...

A little further from the gravity of NFPs, there are a few other appealing opportunities. Both the EURAUD and EURCAD head-and-shoulders patterns we were monitoring yesterday played out beautifully. I didn't put in limit orders; so unfortuntely, I wasn't participating in that near perfect technical development. Moving on, GBPAUD looks like it is developing a similar pattern should it drop below 1.58. This is also a favorable carry. EURNZD could end up as a decent range between 1.79 and 1.76 - it is at the bottom of that range now. GBPJPY is still in its long-term channel / medium-term range even though it posted volatility. This is an active one to watch. And, there are a few more; but given they are further from significant moves, I'll update when they get closer.

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