Noticeable Shift In Dollar Sentiment (UUP, EWU)

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Mike Kulej: Employment numbers dominated Friday. First from the Eurozone, then from Canada and Finally the NFP report from the USA. While all were important, the NFP data proved to be the biggest market mover, as it typically does. According to the Non-Farm Payroll report, US economy added 200 K jobs in December, above the forecast of 150 K. At the same time, the Unemployment Rate dropped to 8.5% or two ticks below the previous reading. Everything looks with couple of caveats. One is the downward revision of November’s numbers from 120 K to 100 K. Another is the “December factor” – some of the jobs created in last month’s might not be permanent and we will have to watch out for the revision next month.

What I personally find more important is the response of the US Dollar (NYSEARCA:UUP,  to positive economic news from home. In the past couple of years, the USD used to rally on disappointing domestic developments, acting as a haven. In contrast, good data tended to benefit other currencies, as if signs of recovery in the USA were good for the so-called “risk”. Recently, though, this has been shifting, with stability at home being reflected in rising USD. This means that America is not only viewed only as a safe haven, but perhaps as a bona fide good growth opportunity and holding Dollars is one way to play it. We had signs of this shift few times before, but Friday’s NFP is the most important single fundamental announcement that demonstrated this change. Now we have to see if this has a lasting effect and if it does, next 1-2 years might be good for the USD (NYSEARCA:UUP).

 

In a usual manner for Friday, I tried to trade early range breakouts on short-term charts. It turned out to be a difficult proposition as currencies essentially froze in anticipation of the NFP report. The GBP-USD (NYSEARCA:EWU) had a fake bullish move, resulting in a loss of 36 pips. Normally I would have reversed, going short, but it was too close to the NFP, so I held out. Once the data was released and this market made initial moves, another selling opportunity emerged at 1.5422. This trade was successful and brought 40 pips gain, admittedly some luck was present with exit so close to the daily low. Have a great weekend!

Mike K.

Courtesy of Mike Kulej, FXMadness, posted with permission of author by Wall Street Sector Selector