What we can learn from trading the recent NFP

You are at: Home » Opinions » What we can learn from trading the recent NFP What we can learn from trading the recent NFP Jul 9, 2019 15:00 GMT | Last Modified: Trading the Non-Farm Payrolls is a complicated – yet potentially lucrative – task The “whisper” number had a significant impact on the trade Having a stop-loss is critical for the event
The first trading week of July 2019 can be divided into everything that happened before the Non-Farm Payrolls and after it The USD dollar ended the week with substantial gains thanks to the jobs report – but the road there was not that straightforward
At FXStreet’s Signals telegram group we have been active around the publication on July 5th

We begin by examining selected messages around the event and then move to the lessons learned.

How the trade played out
Around 90 minutes prior to the release, we wrote:
Should Microraptor enter a trade it will set the target at 60pip more or less, from the point of entry, which can suffer from slippage This means we will report on the price levels where Microraptor has set the TP and SL, but we will also indicate where and if we would like to adjust trade parameters
We can see that a clear target was set – 60 pips No less importantly, clear take profit levels and stop-loss levels which served us well afterward

Here is the following message on the group:
Another strong scenario in the opposite direction is a reading above 280k, enough to trigger demand for the US currency and push the EURUSD down (stock indices as well, and by sympathy commodity dollars).

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280K was the target for a selling trigger on EUR/USD according to the headline That was based on the original economists’ consensus of an increase of 160K positions We will see later how things have changed since that initial estimate, lowering the bar for an upside surprise in the gain in positions
This was the message one hour before the release:
One word of caution: Microraptor can trigger conflicting trades since it will monitor the NFP Change and Wages For wages we gathered these scenarios from our analysts: above 33% -> EURUSD Down below 31% -> EURUSD Up
We were aware of the complicated nature of trading the Non-Farm Payrolls report

There are two critical factors: the headline change in US jobs and the change in salaries.

Let’s fast-forward to the release and the signal that was triggered:
Only one trigger from Microraptor
US Average Hourly Earnings (YoY) -> Buy EURUSD
US Average Hourly Earnings (YoY) for June were slightly below than the average forecast (31% actual vs 32% expected)
that’s bearish for the USD, therefore activating a Buy in EURUSD
Wages were weak and triggered a selling signals on the dollar – a buying one on EUR/USD

However, the change in positions came out at 224K, above official expectations at 160K but below the threshold for the trigger, stood at 280K:
the rest of the data released didn’t show a significative deviation (with respect to past events) to trigger more orders
What happened in markets? The US dollar gained ground across the board – reacting to the headline 224K increase.

However, the move took time to fully materialize
We wrote this at 12:45 GMT, 15 minutes after the publication:
The EURUSD long was aborted in our discretionally managed account for -21 pips As explained before, our preferred scenario was EURUSD down into the weekend with some possible follow through next week
The stop-loss kicked in to abort the trade and minimize losses Moreover, we foresaw the extension of the downtrend in EUR/USD The world’s most-popular currency pair closed the week at 11224 after trading close to 11300 ahead of the NFP
Here are the three lessons we can learn: NFP is complicated
There are reasons why the “king of forex indicators” has earned its throne While volatility is high, it is essential to follow both the headline number and wages for the full impact

Each US jobs report requires a careful study even for experienced traders.

The reward for successfully trading the event may be immense – beating that of operating around a more straightforward economic indicator In this case, the market reaction to the publication was slow – allowing time for a full analysis and jumping onto the trade with a calm mind Leading indicators changed expectations
As mentioned earlier, the number of positions was originally expected to rise by 160K However, economic figures leading up to the NFP were downbeat Two days before the NFP, we wrote this article: NFP leading indicators: Negative signs outweigh the positives

And while these figures did not foresee the actual result – they shaped market expectations.

The “whisper number” stood at only 120K – 104K below the result There is a considerable difference between a surprise of 104K and a surprise of 64K – the gap between the 224K print and the original estimate of 160K – and that explains the full market impact

Stop loss is critical
“Cut your losses early and let your profits run.

” That is one of the basic tips that forex instructors teach – and it is as relevant as ever In this trade, we cut short our losses and aborted the trade almost unharmed by shedding a meager 21 pips One significant winning trade can wipe out losses from many such losing ones

We set out an exit strategy – including both stop loss and take profit points – and that is something every forex trader should do.

Conclusion
Trading the US Non-Farm Payrolls may be rewarding but requires considerable preparation Leading indicators should be watched closely and an exit plan is needed – as ever

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