Wednesday, March 5, 2014

US dollar jury starts its deliberations today | Do not trade global news

The ADP payrolls report comes out today. This private company attempts, each month, to anticipate the Non-Farm Payrolls report produced by the American government on the first Friday of every month, which is this coming Friday for job growth (or decline) during the month of February. Payrolls will be watched very carefully this month. The reason for this is that they have been softer than expected over the last two monthly readings, and this has given rise to the suspicion in some quarters that the US economy is not recovering to the extent that the Federal Reserve has come to believe, and everyone else would like.

All of this has implications for the announced end, by the Fed, of Quantitative Easing (QE), and the knock on impact on the strength of the US dollar. The chart above shows that the Greenback against the Japanese Yen had one of its best days yesterday since the start of the year. This was in response to the apparent easing of tensions in Ukraine, after Russia ordered it troops, which had been on a “military exercise” near the border with Ukraine, back to barracks. However, we perceive this rise as having just as much to do with the fact that the market is bullish on the US dollar at bottom. And this means that any disappointment in payrolls this month will have a very serious effects in the Forex market.

Our signals have indicated that the Yen is weakening (which means that the USDJPY pair, discussed above, is on the rise, so we have taken a long position in this instrument.

Do not attempt to trade global events

The crisis in the Ukraine provides a good example of the kind of news story which, in our estimation, should be ignored as much as possible when making buying or selling decisions in Forex. On this occasion its effect on the markets only seemed to last for about one day, and in the event only delayed consideration of the things that really matter, such as the payrolls report mentioned above.

Foretelling the future, as we have often written in the past, is just not possible. All one can do is attempt to place probability on one’s side, as a trader, and trying to second guess the mindset of people such as Mr. Vladimir Putin would be an exercise in futility at the best of times. A news story, such as that out of Ukraine, most often only has a very transitory effect.

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