USD/JPY – Downtrend Confirmed ?
Today saw the release of the Non Farm Payrolls, while the announcement came out better than the forecast (205k compared to 193k ) the majority of the USD crosses saw large up swings. EUR/USD rose 148 pips, AUD/USD – 70 pips, GBP/USD – 200 pips. In comparison, USD/JPY suffered a huge drop, it fell more than 220 pips in 4 hours !
The volatility the NFP creates is the main reason why I tend to stay out the market the day it gets released.
On the day of the release, the majority of the traders in the market are all waiting for the release to come out before placing their trades, this means the opportunities for you to place your own trades is limited. Typically, when the market does provide a trading signal it ends up being too close to when the release comes out and the odds of having a successful trade decrease.
I would say the situation on USD/JPY right now is pretty dire. The down-move today confirms the whole up-move we saw after the Bank of Japan started a negative interest rate policy was simply a trap for traders to go long. Now we have a situation where all the traders who went long are beginning to go short in the market.
The pullback we are currently seeing is caused by the professional traders taking profits against the reactive traders and the trend traders who are placing sell trades due to them identifying today’s down-move as confirmation of a new trend. Whilst it’s very likely USD/JPY is now going to develop into a downtrend, most traders will take today’s down-move as a sign to get short immediately. They feel like they need to get into the market right now as opposed to waiting for a pullback or consolidation to take place before placing their trades.
Tomorrow you need to be watching the current pullback for signs of a continuation back down, wait for a reversal to occur before taking any signals you see.
EUR/USD – Moving Back To The Consolidation Highs ?
The NFP also caused a dramatic up-move on EUR/USD.
I spoke yesterday about how If the market was going to drop, it would do so above the source of the down-move which I marked on the chart with a blue line.