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FX Strategy: Pre-NFP Price Action Setups

FX Strategy: Pre-NFP Price Action Setups

James Stanley, Senior Strategist

In this webinar, we looked at price action setups ahead of tomorrow’s release of US Non-Farm Payroll numbers for the month of May. Tomorrow’s NFP report is accented with a couple of additional items of interest, as Spain appears to be headed for a no confidence vote for Prime Minister Mariano Rajoy; and the topic of trade tariffs came up again today when the United States announced that steel and aluminum tariffs will be levied on Canada, Mexico and the EU.

Talking Points:

- If you’re looking to improve your trading approach, our Traits of Successful Traders research could help. This is based on research derived from actual results from real traders, and this is available to any trader completely free-of-charge.

- If you’re looking for a primer on the FX market, we can help. To get a ground-up explanation behind the Forex market, please click here to access our New to FX Trading Guide.

If you’d like to sign up for our webinars, we host an event on Tuesday and Thursday, each of which can be accessed from the below links:

Tuesday: Tuesday, 1PM ET

Thursday: Thursday 1PM ET

US Dollar Pullback Continues as Rate Expectations Soften

As a knock-on effect of the theatrics in European politics, rate expectations have started to get pushed-out around the US and the Federal Reserve. While a hike in a couple of weeks at the bank’s June meeting is still high probability, the prospect of a total of four hikes this year out of the Fed looks quite a bit more questionable, with odds as of this morning down to 27%. This has helped the US Dollar to continue pulling back after the failed attempt at 95.00 earlier in the week; and as we saw on shorter-term charts, there’s a case to be made for short-side strategies in the US Dollar. Coming into this week, we had set up AUD/USD and NZD/USD for that scenario, and with those markets showing varying degrees of development, we continued to look to a balanced approach around the US Dollar as we approach tomorrow’s NFP report.

EUR/USD Testing Key Resistance

The drop in EUR/USD was fast and violent, and when we re-encountered this key support zone on the way down, this was a mere speed bump that helped to slow the move over a couple of days. But – this level had played out quite a bit in the latter-third of last year with numerous inflections, and earlier this morning, prices bounced up to this zone to find a bit of resistance. This area runs from 1.1685-1.1736, as bound by a couple of longer-term Fibonacci levels, and this area can help to substantiate short-side plays. If prices do not stay below 1.1750, another potential area of resistance exists from 1.1821-1.1855, and this could also be an area to stage short-side plays should the current zone of resistance not hold.

EUR/USD Four-Hour Chart: Finds Resistance at a Familiar Area

eurusd four hour chart

Chart prepared by James Stanley

GBP/USD Holds the Lows, For Now

An element of support finally started to show in Cable (GBP/USD), and this is the area that we’ve been following that runs from 1.3269-1.3321. The past couple of days have seen prices firm within this zone, and the pair has jostled back towards the 1.3300 area. Nonetheless, sellers have remained active, and given how oversold the pair was coming into this week, we could be seeing more of a short-squeeze than an actual bullish move. This highlights the same zone of potential resistance that we were looking at earlier in the week around 1.3400, and this is something that could be helped by Non-Farm Payrolls tomorrow. If we see a gust of USD-weakness, this could help to prod GBP/USD a bit-higher, and if we do see lower-high resistance set-in at or around that 1.3400-zone, the door opens for short-side setups.

USD/CHF Continues to Turn Lower

We had looked at the short-side of USD/CHF on Tuesday as a bearish-USD play, and that move has continued to show promise as Franc-strength has tilted the pair deeper below the parity level. This keeps the short-side of USD/CHF of interest as long as prices remain below 1.0000, and longer-term targets could be directed towards the confluent area of potential support around the .9700-handle.

USD/CAD With a Heavy Two Days of Volatility

Yesterday’s BoC helped to bring on a strong Canadian Dollar, and then today’s tariff talk helped to reverse that move. We looked at the prospect of playing reversals, focusing on CAD strength and looking to fade this morning’s headline-driven pop. As long as prices remain below 1.3000, short-side swings remain an attractive option.

USD/JPY Becomes Messy

The pair continues to tempt the support zone that we’ve been following that runs from 108.62-109.19. Shorter-term price action shows a lacking response from bears, however, and this makes the short-side of the pair a bit less attractive. The long side of the pair isn’t all too attractive either, as bulls have been unable to push the pair with much noticeable strength over the past week. This could, however, be used to base into other trades, speaking to the potential for short-side EUR/JPY and GBP/JPY scenarios.

NZD/USD for Short-USD Strategies

This was the second pair we were following for USD-weakness this week, largely looking to the longer-term range that remains in the pair. This was our favored pair for USD-strength in April as we looked to play the short-side of that range. With that bearish theme now priced-in, we started to follow the long side for USD weakness as one of our FX Setups for this week. With the pair now trading back above the .7000 level, that theme remains viable. We looked at a couple of different ways of working with this move.

NZD/USD Weekly Chart: Prices Bounce From Range Support

nzdusd weekly chart

Chart prepared by James Stanley

To read more:

Are you looking for longer-term analysis on the U.S. Dollar? Our DailyFX Forecasts for Q1 have a section for each major currency, and we also offer a plethora of resources on USD-pairs such as EUR/USD, GBP/USD, USD/JPY, AUD/USD. Traders can also stay up with near-term positioning via our IG Client Sentiment Indicator.

Forex Trading Resources

DailyFX offers a plethora of tools, indicators and resources to help traders. For those looking for trading ideas, our IG Client Sentiment shows the positioning of retail traders with actual live trades and positions. Our trading guides bring our DailyFX Quarterly Forecasts and our Top Trading Opportunities; and our real-time news feed has intra-day interactions from the DailyFX team. And if you’re looking for real-time analysis, our DailyFX Webinars offer numerous sessions each week in which you can see how and why we’re looking at what we’re looking at.

If you’re looking for educational information, our New to FX guide is there to help new(er) traders while our Traits of Successful Traders research is built to help sharpen the skill set by focusing on risk and trade management.

--- Written by James Stanley, Strategist for DailyFX.com

Contact and follow James on Twitter: @JStanleyFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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