[B]Trading the News: US Industrial Production[/B]
[B][U]What is Expected[/U][/B]
Time of release: [B]11/16/2007 14:15 GMT, 09:15 EST[/B]
Primary Pair Impact : [B]EURUSD[/B]
Expected: [B] 0.1%[/B]
Previous: 0.1%
[B]How To Trade This Event Risk[/B]
Over the past three months, we have not traded the US industrial production release as more market-moving indicators presented themselves at the time. However, with the economic calendar thinning out into the end of the week, the factory activity report is laid bare as one of the top event-risk candidates for the US session. However, just because the release is alone and has not proven itself in the past, doesn’t mean there is no volatility potential in its print. In fact, the fundamental seas in the States have certainly shifted such that activity in the business sector has taken on a new air of significance in the health of the world’s largest economy. This indicator has a hand in measuring the health of one of the US’s largest sectors - one that has been a significant contributor (and detractor) to growth in the past. And, taken from a more granular perspective, the data will offer a measure of employment, capital investment trends, domestic demand and demand from abroad. This last one will be particularly important in today’s market climate as general economic theory would suggest a cheap dollar would stoke foreign orders as the goods are more competitive. The real question is then, how quickly can a cheap dollar lead to strong production trends so that the business sector can plug growth. Though this indicator has deep roots, we will remain very skeptical of its market-moving ability. The TICS data is scheduled 15 minutes before the production release, so we will watch volatility and the sentiment bias after that release. If there is not a significant change in the factory reading (a 0.5 percentage point surprise or more) we will not trade it. The ISM manufacturing indicator is already a leading source for this sector, so we should expect too much.
We have already laid out most important condition for a long dollar (short EURUSD) trade: a sharp divergence in the actual print from expectations. We will look for a 0.6 percent reading or better from the indicator to provide its own impact on the market. At the same time, we would prefer it if the TICS data would have no major impact on the market or get the dollar moving higher to warm the markets to a reaction to the IP number. If we get a good fundamental mix and red five minute bar, we will short to orders of EURUSD at market with an immediate stop above the swing high (or a reasonable, fixed distance). The target on the first lot will equal its own risk while the second will be discretionary. To conserve profit, we will move the stop on the second lot to break even when the first takes profit.
Similar to the setup for the short EURUSD trade, a long must be found on a large divergence from the actual print. We will use the same rules and entry/exit criteria for a long position that we laid out for the short, just in reverse.
