Doing your homework into a key release like the US employment report can pay dividends.
The US employment number today showed:
- >250K job growth, with
- Positive revisions for the prior two months (+147K!), and
- Average hourly earnings >0.3% (+0.5%)
Those were the exact conditions I set for a bearish move for the EURUSD today before the unemployment release, and all were met (see: Forex technical analysis: Technical levels to follow for the EURUSD through the US employment report)
EURUSD steps lower
In the same pre-employment report, I outlined the target levels given a bearish report included (see green numbers in the chart above):
- 1.1405 = 100 hour MA (blue line in the chart above). This is 72 pips from the high. The range for the day should be larger than that on a bearish release
- 1.13923 = Old 38.2% retracement level
- 1.1372/82 = 1.1372: low from November 2003. 1.1382: Channel trend line
- 1.1362 = 200 hour MA. 115 pip trading range for the day. On a bearish report for the EURUSD, this is a doable target.
- 1.1300/03 = Recent lows (blue horizontal line). This would be a 177 pip trading range and should slow the trend down.
These were the most obvious levels I felt the “market” would follow given a strong number. How did the price progress and where do we stand currently.
Looking at the a 1 minute chart – so as to see the moves more closely- the initial plunge moved below the 1st and 2nd targets at the 100 hour MA at 1.1405 and 1.13923 levels. It did not take long to fall below targets 2, 3 and 4 (the 200 hour MA at 1.1362). The low extended to 1.1352 in the 1st four minutes of trading – 10 pips from the 200 hour MA in steady selling conditions.The 200 hour MA did slow the initial move lower (see the up and down hesitation in the 1 minute chart below).
The EURUSD has stepped down in an orderly process.
A period of consolidation/correction ensued for the next 25 minutes. During that time, the price corrected back to the 1.1392 area. The high peaked at 1.1395 (see post: Forex technical trading: EURUSD tumbles on the back of the strong employment). This was the perfect level to lean against for a short trade as:
- It was the 38.2% of the move down (see chart above),
- It was against the #2 target at 1.13923
- It was below the key 100 hour MA at 1.1405
- It was below the 50% of the move down today at 1.1408
When trading an event like the employment report, it is important to monitor the corrections for those clues and trading opportunities. Today, it provided those who missed the move down, to get in after the data was known (no risk from the event). It also allowed for those traders who were on the wrong side, to get out of jail with a manageable loss.
The best trade – with risk after the employment numbers – was to sell in the 1.1390s, stop above 1.1405-08 and hope “the market” agrees. Do we know it will hold? Absolutely not. I have seen what seemed like a slam dunk trade, not do what you expected. However, given the unambiguous data, it was the only trade. The homework set up that trade.
The price moved lower and reached a low of 1.1314 so far.
I would not be surprised to see the trend lower continue and the next target to be reached before the end of the day. I would not expect the price to remain below the 1.1372 level. This was the low from November 2003 and is also the 38.2% of the move down today. The 200 hour MA is at 1.1364. This area should be a strong line in the sand not only today but going forward.
EURUSD keeps the sellers in control below the 1.1372 level now.
Doing your homework before a key risk event like the employment report, can still yield profitable returns. The full move may not be achieved but if the conditions are right (they were today) and the “market” is in agreement, a low risk/high reward opportunity can still be had.
Be aware. Be prepared.