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Cliff Wachtel
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Cliff Wachtel, CPA, is currently the Director of Market Research, New Media and Training for Caesartrade.com, a fast growing forex and CFD broker. He covers a variety of topics including global market drivers, forex, currency hedged and diversified income investing, and is currently working on a... More
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  • TRADING US MONTHLY NFP & UNEMPLOYMENT REPORTS VIA FOREX BINARY OPTIONS 0 comments
    Mar 3, 2011 9:51 PM | about stocks: UUP, UDN, FXA, FXB, FXC, FXD, FXE, EUO, FXF, FXEN, FXY, JYF, AUNZ, CYB, GLD, CNY, USO, DUG, DBV, ICI, CEW, SLV, OIL, SPY, SDS, RSW, BXDC, SPXU, SH, QQQ, DIA, EWC, EWA, TLT, XHB, ITM, ERO, IGOV, VGK, TBT, GSG, DBC, CORN, ICN, SZR, BZF, GRU, DAX-OLD, FRC, DB, SAN
     ome Simple Short Term Trend Trading Opportunities

    One of the most potent market moving events of the month for all asset classes is the monthly US jobs reports, comprised of 2 major reports, the monthly non-farms payrolls change and the monthly unemployment report.

    They often generate excellent clear short term trends for forex traders, particularly in the major USD and related currency pairs.  Typically, the USD/JPY will show the most direct reaction to the non-farm payrolls report on the US Dollar, while high beta currency pairs like the EUR/USD, GBP/USD and AUD/USD respond more to how the reports influence overall risk appetite rather than specific USD concerns.

    As I noted recently in

    Trading Thursday’s ECB Press Conference Using Forex Binary Options

    Why So Few Forex Brokers Offer Binary Options? The Short Answer

     

    Binary options are a relatively new trading vehicle to the retail market (though long known to institutional traders) that are arguably the most ideally suited means of pure short term trend trading in any asset class, including forex, stocks, stock indexes and commodities.

    Why? In sum:

    • Binary Options allow traders do not require the complex trade planning and risk management that is the downfall of even talented, experienced traders, and allows them to focus solely on:
      • forecasting the trend over a given time period (that by itself is by no means simple,  but it’s quite achievable most of the time once one has some skills and experience in reading technical and fundamental indicators). Traders who believe that trend will rise over the selected expiration period buy a call option. Those who believe the opposite buy a put option.
      • Understanding what position size and time frame is most appropriate given the trader’s cash reserves and specific market conditions.
    • Maximum loss is fixed, eliminating the risk of unanticipated gut wrenching losses from sudden price gaps that even a carefully planned stop losses can’t prevent
    • Yet despite their ETF- like simplicity, ‘BOs’ yield typically 70% profit on winning trades, regardless of how small the move in the trader’s direction
    • Binary Options take much of the emotion out of trading because most have no option to exit the trade before expiry (except for the options+ type binary options offered at anyoption.com). That eliminates the psychological stress so many endure when deciding whether to exit a position that has turned against them. Indeed many find it best to walk away from their computers once the trade has been placed.

    Yet those seeking to trade binary options for any asset class must usually work through one of the specialized binary brokers like www.anyoption.com,  eztrader, or others you can find  via a Google (NASDAQ:GOOG) or Yahoo (NASDAQ:YHOO) search using the term “binary options broker.”

    High Expectations To Limit Further EUR Gains?

    Significantly, however, the EURUSD has been flat to lower since the ECB press conference on profit taking, suggesting

    • that the news was already priced in
    • caution ahead of Friday’s US jobs reports
    Low Expectations Setting Up A USD Bounce?

    Markets believe the Fed will be among the last of the central banks to raise interest rates, and recent poor economic data and mild inflation has confirmed that impression. Recent data on growth, spending and jobs has not suggested a robust recovery, but rather a slow one. The Fed is not expected to even consider rate increases until jobs and spending are on a clear sustainable path to recovery.

    Friday’s Non Farms Payrolls (NYSE:NFP) and Unemployment rate reports provide the next chance for new optimism about the US recovery and rate increases that might support the USD and stop the EURUSD rally. There is reason for optimism

    Because expectations about rate increases for the USD are so low, as reflected in the USD’s 8 week slide vs. the EUR, even mildly good news could send the USD higher

    The coming monthly NFP figure is supposed to improve markedly from +36K to +176K, anything even close to that forecasted figure could be taken as enough of an improvement to feed a least a short term bounce in the USD as USD shorts are tempted to take profits

    Spreading unrest in the MENA region and spiking oil prices are more of a threat to risk most other currencies than to the safe-haven USD.

    In addition to stabilizing oil prices (THE prime market mover over the past week), initial jobs claims fell, the ADP NFP report was good, and most importantly, the services PMI (the best single leading indicator of jobs growth was also strong. Thursday’s US markets closed higher on this news, suggesting a widespread belief that the jobs reports will be good

    Likely Scenarios, Trends That Could Follow, How To Profit

    Strong likelihood of USD rally if:

    • job growth beats the forecasted 176K strongly and comes in above 200k,
    • an upward revision to the January figure
    • no increase in the unemployment rate.

    Given the USD’s short term oversold position, even 2 out of 3 of these would still be likely to produce the following trends Friday after the announcement:

    USDJPY UP
    • Binary Options Traders: buy calls for hourly, daily, and weekly expirations while the pair remains below resistance of 83.15 from the descending upper red line of the flag pattern shown in the chart below, and above support from the rising lower red line around 82.
    • Spot forex traders bias to long position for the day, possibly into next week
    • Stock traders go long US indexes and stocks that tend to follow risk appetite (SPY, QQQQ, DIA, XOM, INTC, JPM, WMT, or the related ETFs for the USDJPY like UUP)

    ScreenHunter 04 Mar 04 03 37  Trading US Monthly NFP & Unemployment Reports Via Forex Binary Options

    USDJPY DAILY CHART COURTESY OF ANYOPTION.COM     04MAR04 0337

    EURUSD, AUDUSD, GBPUSD DOWN
    • Binary Options Traders: buy puts on these for hourly, daily, and weekly expirations
    • Spot Forex Traders: short bias on these pairs for Friday
    • Stock Market Traders: play these pairs via the related ETFS: long EUO, short FXE, FXA, FXB

    As we did above with the USDJPY, traders should consider a short bias on these pairs while they remain below likely near term resistance and above near term support on their daily or weekly charts.

    For example in the EURUSD daily chart below, note the strong established resistance around the 1.4000 range indicated by the upper horizontal red line. Avoid short positions on the EURUSD if we get a decisive penetration above this area, otherwise maintain a short bias while the pair remains above likely near term support around the 1.3750 support zone (lower horizontal red line).

    ScreenHunter 07 Mar 04 03 48 1024x635  Trading US Monthly NFP & Unemployment Reports Via Forex Binary Options

    EURUSD WEEKLY CHART COURTESY OF ANYOPTION.COM      07MAR04 0348

    If however, results are only moderately weaker than the above criteria, the resulting short term trend may not be strong enough for a clear uptrend and thus we would avoid trading altogether.

    If results are significantly weaker, with 2 or all 3 below expectations, then the short term trends are likely to be the opposite of our above forecasts.

    USDJPY

    Bias To The Short Side .For example:

    binary options traders stick with put options over the coming hours if not days.

    EURUSD, AUDUSD, AND GBPUSD

    Bias To The Long Side, For example:

    • Binary options traders maintain bias to calls on these for the hours that follow the announcement or for the daily expiration.
    • Forex traders stay long these pairs, though beware going long the EURUSD until it breaks decisively over 1.4000
    • Stock traders: Long FXE, FXA, FXB.
    Beware Sudden Risk Appetite Shifts

    Regardless of what the US jobs reports show, the USD could be rallying if there is a big drop in risk appetite due to such brewing threats as:

    • MENA unrest further threatening oil production
    • An eruption in the EU debt crisis – mostly a matter of when, not if

    Similarly, any significant good news about either of these could send the USD lower barring a stellar jobs report.

    DISCLOSURE & DISCLAIMER: AUTHOR IS SHORT THE EUR FOR PERSONAL PORTFOLIO. THE ABOVE IS FOR INFORMATIONAL PURPOSES ONLY AND NOT TO BE CONSTRUED AS SPECIFIC TRADING ADVICE. RESPONSIBILITY FOR TRADE DECISIONS IS SOLELY WITH THE READER

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