The non-farm payroll: Reaction! Shocks! Opportunity…

The major surprise of the non-farm payroll on Friday 5 October was… there were no major surprises.

Despite the much-discussed uncertainty surrounding both the strength of the US economy and the stance of the Federal Reserve, the data that emerged was broadly in line with expectations. Both the creation of around 134,000 new jobs and the year-on-year average hourly earnings of 2.8% corresponded to the anticipated figures of 188,000 and 3.0% respectively. Also notable was a 0.1% fall in the unemployment rate to 3.7%, which is good news for the US dollar.

How should traders have reacted?

The USDJPY may seem an obvious choice, as the dollar is higher than the yen for the fourth consecutive week, but the American currency has some underlying issues. Concerns around rising 10-year yields, which hit 3.20% on Thursday, have triggered a large sell-off in US equities. The potential China spying scandal has also made USDJPY less attractive, as the yen has been favoured by risk-averse speculators. The US dollar remains strong, but the markets would have needed both the non-farm payrol’s jobs and wages numbers to come in higher if the USD were to strengthen further.

Instead, smart investors should consider the EURUSD.

Trade the EURUSD today! Open a FREE account and enjoy some of the tightest spreads on the market.

Sell EURUSD? Italian attacks weaken confidence in the EU    

Italian budget concerns are weighing on the Euro, with Italy’s Deputy Prime Minister, Matteo Salvini, publically attacking the EU last week. The lower-than-expected jobs and wages numbers in the non-farm payroll release have revealed some weakness in the USD.  

To sell the EURUSD pair, traders can consider the following strategy, which allows you to enter short and limit your risk. On the 1-hour chart below, take the midpoint (known as the 50% Fibonacci retracement level) of the latest downward movement. The circled area on the chart represents the 50% Fibonacci retracement level. This point is also where the downward sloping trend line and the 100-day exponential moving average meet.

Entering the market with a 10-point stop above the 100-day exponential moving average (EMA) provides a low-risk, high-reward entrance to sell the EURUSD pair. You lower your risk by minimising the size of your stop, but maximise the size of your return. If you missed your opportunity or the markets are evolving, then you should wait for a re-test of either the 50, 100, or 200 EMA  on the 1-hour chart.

The best strategy is to wait to see if price reacts to those EMA levels on the 1-hour chart. If, on the 1-hour, candlestick chart, you see a rejection of either the 50, 100 or 200-day EMA, then enter a sell entry — with your stops above the high of that candle.

Here is a visual example of that strategy, just after the data was released:  

In this instance, you would have placed your stop at 1.15520 and your sell entry would have been at 1.15400, as price re-tested the 100-day exponential moving average. Traders should now look for a re-test of the 50, 100, or 200 EMA for a similar pattern to occur before initiating any new sell.

View the chart below to see what this looks like in action:

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