The ECB, the Euro and Non-Farm Payrolls

EURUSD Hourly 060314Good Morning, Friends. Although we trade technically, there are still events and other fundamental inputs that we need to be aware of in order to take advantage of potential opportunities, while avoiding possible pitfalls. Meetings of major central banks are ones to keep on the calendar. Today’s it was the European Central Bank’s (ECB) turn. They were expected to do nothing, and did so, while slightly hiking the forecast for the region’s GDP in 2014 to 1.2% from 1.1%.

Although “nothing” was expected, foreign exchange traders are subject to paranoia, although the enemy is generally the market, rather than individuals. In this case, there was concern that the ECB might cut. Currencies normally quickly reflect expectations as to moves in short term rates, but a surprise can have an outsized impact, sometimes even altering the trading range. As the chart of EUR/USD  above indicates, at least some shops were positioned for a large move in the event of a surprise ECB cut; when it didn’t occur, they covered, and as that played out, plenty of others were happy to jump on and give the move a push.

Tomorrow at 8:30 EST brings another important number, the monthly non-farm payrolls report. Almost anything can be explained away at the moment by the generally nasty winter, so we’ll get a sense of the market’s positioning and confidence when we see the reaction to the report. The consensus expectation is for a gain of around 143k  jobs. I’ve had some success in the past few months going into these reports with a strategy based on Todd Mitchell’s first half hour breakout. It is not without risk, and I’m aware that I’m likely to get dinged at some point; it’s just part of the process. Given some decent volatility, however, it can work well. Here’s a picture of the response to last month’s report in the E-mini futures:

ESH4 3 Minute 070214

We’ll see how that plays out tomorrow; in the meantime, U.S.  equity futures appear to be more or less unconcerned. The “Wall of Worry” seems a little lower today. Be lucky!