Understanding the effect of NFP on AUD/USD

Beginner Questions
1

Hi,

Im new to forex and im sorry if Im asking a really dumb or obvious question ahead of the US NFP results tonight but I want to understand the effect that this has on other currency pairs, for example the AUD/USD pair.

I traded the other night on the same pair earlier on in the week and got stopped out badly in the trade because of the ISM results and the momentum swing to the upside, and then immediately to the downside because of what happened to the USD.

So, to clairify, “IN THEORY” (and removing the fickle nature of investors like in the ISM case where it moved then ranged and couldnt make its mind up" IN THEORY: if the NFP result is better than expected the USD will rise and the AUD/USD pair will start to fall (by virtue of the USD gaining strength against the aussie dollar), and, if the NFP results are worse than expected, I should see the AUD/USD pair gain because of the lack of strength of the USD.

Also, in the case of the initial swing with everyone and thier automated scalping systems doing one tick trades… What can I do to avoid getting my existing long term trades stopped out.

My I shorted the pair @ 1.01835 with a stop at 1.024 with the intention that this will be a 30day trade…

Should I just set it super high 1.05??? for the announcement and then once the noise and spikes settle down, reset it back to my stop so I dont get kicked out by the scalpers?

Many thanks for helping a beginner understand this.

2

You are betting against smart money who has been BUYING AUD since the 1.0080/120 level, yesterday.
There is a barrier option @1.0200 in place. Sooner then later it will break.
Looks like you are looking at a freight train coming straight at you.

3

I am short @ 1.0192

4

Funny looking freight train, and the smart money - really is stupid…

Still, my question wasnt answered:

IN THEORY: if the NFP result is better than expected the USD will rise and the AUD/USD pair will start to fall (by virtue of the USD gaining strength against the aussie dollar), and, if the NFP results are worse than expected, I should see the AUD/USD pair gain because of the lack of strength of the USD.

5

It’s all very logical in theory, but from what I understand, and I’m not a fundie news trader, is that it’s possible that price can trade up or down based on the forecast. Then when the actuals happen, it may have a violent reaction, or none at all. It possible too that the AUD may have some good or bad news of it’s own to counter the good/bad news of the USD… there’s always some kind of news being released every day.

To avoid it, avoid trading during major news release anyways…apparently that’s what smart money does so I’ve been chastised for… or perhaps wider stops at those times like you said. You’ll have to do some research to determine what is optimal. :slight_smile:

6

I’m short this pair, too, I went short on Tuesday with the bounce of the resistance line around 1.0190. I’m around 3% up on that trade at the moment, so I would not worry too much about the freight train, either.

In terms of NFP I think that your (radial2000) understanding in your original post tallies pretty much with my experience. I personally rarely trade through major news, as it often creates spikes etc. as you describe. But in a trade of that duration, I would think that there are three main options, depending on your style and where your trade is at the time: a) move your Stop to breakeven, so it becomes a ‘free’ trade, then if you survive NFP put the Stop back to wherever your strategy says it should be; b) move your Stop to a position that locks in some profit and hope that NFP doesn’t stop you out; c) raise your Stop, as you suggest, to behind a strong resistance level or something, to seek protection from any spike. The downside of this is that increasing your Stop mid-trade generally means breaking your money-management rules by increasing your risk on the trade to too high a level, which is a no no, particularly ahead of NFP.

There will be other options, obviously, but that is how I would look at it. If none of the above works for me then I tend simply to close a trade ahead of NFP - I find if I limit my losses the rest tends to look after itself.

7

Yes, that’s so…eight days later. :slight_smile:
It took a People’s Bank of China interest rate hike on Feb, 8th to put the brakes on AFTER 1.0200 Barrier Option got taken out last Friday and 1.0190 level retest the following 72 hours.
Smart money got what they wanted…the 1.0200 barrier.
The freight train is still on track…it is refuelling. :slight_smile:

Still, my question wasnt answered:

Eight days ago, nobody knew a People’s Bank of China interest rate hike would be coming. Intent of order book was long with offers sitting above 1.0230/50 level.
NFP and 1.0200 Barrier Option taken caused a 100 pip pullback going into Sunday this week.

8

…sorry am I missing something… 5*?

the inner circle guy’s only got 4!

makes it a bit meaningless.

9

Well, Mr Templar…what is your take on the situation NOW ?
Looks like that freight train got movin’ again. :slight_smile:

10

My take on the situation? I thought price might stall around the Monthly Pivot, particularly as the Monthly at around that point coincided with a rising trendline that I had drawn on the Daily chart a while back. So I trailed my Stop to just above the Monthly, locking in almost 3% profit. Then I stopped early for the week and went and got the kids from school, during which time I was stopped out and made just under 3%. Now I am home with a stress-free weekend in prospect reflecting on a successful trade (almost 1:3 Risk:Reward) to finish the week.

The thing with spotting freight trains coming is that they are only a problem if you stand in front of them. You knocked radial2000 for saying ‘funny looking freight train’, by implying that this was said only with the benefit of hindsight, being eight days after your comment. Now you imply that actually you were right all along, as you believe that the freight train is now hitting. So you are attempting to occupy both sides of the discussion, depending on who you wish to debate with.

Radial2000 and I ran two different trades: Radial’s is intended to run for 30 days, I was targeting 2%. A standard component of my strategy on such a trade is to trail my Stop to obvious resistance levels, locking in profit. This Stop being hit is how I generally exit this sort of trade. Radial2000 is forming a longer term view, trading according to a different strategy. It just happened that that led to us each shorting the pair in the same week.

My trade worked out ahead of expectation and, with AUD being a commodity currency, and with all the recent issues in Australia - floods, storms etc. - a bearish case for AUD is pretty easy to make, after all. Anyone can predict that a particular pair will go up or down at some point in the future - the trick is to time trades within these moves, take the money and move on.

So my take on the situation is that I am very happy with my trade, but I am surprised that you seem to be making this a competitive or even confrontational exchange. I contributed to this thread as I thought I could help the OP with some advice on Stop placement. Your last post, addressed to me, came across as though you felt some satisfaction from your own assumption that my trade had moved against me. I think that the market is tough enough without traders engaging in aggressive oneupmanship like that.

From my point of view, the ideal outcome is that my analysis gives me a winning trade, then your train arrives and gives you a winning trade, preferably with a gap in the middle for radial2000’s 30 day trade to pay out, too.

Sorry, radial2000, for this diversion in the middle of your thread. I hope that you still found the earlier thoughts from various contributors helpful.

11

I agree, nothing against the thread but it is not that ground-breaking! I don’t know how to award stars (nor do I really think that it is really my place, being a relative newbie around here) so not guilty.

12

Interesting discussion this has turned into.

Smart money works different than you and I do.

It realizes that at some point currencies will seek equlibrium.

The Aussie is at a crossroads. It’s reached a rather stagnate place, because sooner or later, it will have reached a point at which it can no longer successfully appreciate in value. The only thing smart money has left to bank is the carry trade. That doesn’t add up as fast as having a currency that is rising as well. Next course of action? A massive selloff, and a sharp drop down. At which point, the game starts all over.

Forex isn’t a Buffet style ‘value investment’ game. It’s high turnover, and much more volatile, due to factors outside even big money’s control. Those big players know that, and act accordingly.

Not saying it couldn’t hit 1.05, but that triple top, and slew of recent events are saying that the reload point will be very much lower than .9900.

Look back at the chart. You can see the footprints left. Slow swings up, then massive drops, only to be followed by nice controlled climbs back up.

Smart money isn’t that smart. It’s just got more clout.

13

An interesting discussion here on the Australian Dollar versus the US Dollar. If it burst out maybe then would be a good time to get on the Assusie and ride it back up. Thats just my opinion with qe2 and federal reserve of united states bailing out everyones makes me quezy.

14

Smart money has got an objective everytime they engage. That’s why they are called smart.

Smart money isn’t that smart. It’s just got more clout.

Smart money is well prepared in advance. They know what they want to archieve and how to go about it inc. emergency bailout.

An example is the AUDUSD and how it is behaving since 9960/80 level. There is an objective behind that behaviour and it hasn’t been met, yet.