The first half of the 2013 year is almost over, and currency traders are looking for signs to figure out which direction the U.S. dollar will be going in relation to the other major currencies. Right now, the dollar is having mixed results of little consequence. The Euro is up slightly, as is the Japanese yen and the British pound sterling, but with the current information, it’s hard to say whether the dollar will keep dropping in value. However, on Friday (June 7th), the Non-Farm Payroll report is likely to have a more profound impact on the world’s most popular currencies.
According to some experts, this report is unlikely to cause a dollar rally. The Non-Farm Payrolls report gives a fairly accurate view of what the job landscape within the U.S. looks like, and although the joblessness rate has gone done over the last several months, many experts believe that this report is going to have a less than favorable impact upon the dollar’s performance. The non-manufacturing index has improved slightly, which is a good thing, but estimates say that the employment component has dropped from 52.0 to 50.1, a decrease that is bound to have a negative impact on those going long on the greenback.
This type of report is very beneficial to short term Forex traders. Trading the news can be a very valuable tool for traders, and it doesn’t even require a broad knowledge in regards to technical indicators. To be sure, having a firm grasp on what technical indicators mean and how to effectively use them is going to be a strong asset for any trader—especially if they combine technical analysis with trading the news—but major reports like this don’t necessarily mandate that technical analysis be conducted. The best approach when it comes to trading the news instead relies on a firm grasp on group psychology. If an unfavorable report is released Friday, what are the majority of traders bound to do? The answer, fortunately, is going to be fairly obvious.
There are a couple things to keep in mind. For starters, if the news is ambiguous, the dollar’s price movement is probably going to continue to be erratic. This leads us to the second point. Just because movement is erratic does not mean that you will not be able to make a profit. It will just prove to be a bit more difficult. Short term Forex traders will need to rely less on trading the news and sentimental trading, and more on the technical indicators that attempt to predict price motion.
You do need to remember that trading just based on expectations can be dangerous. This should be obvious, but it does need to be stated explicitly. Let’s look at a quick example within the current array of information out there. For one, just a few days ago, the NFP report looked like it was going to be positive in nature. Payrolls were expected to go from 165K up to 167K. For the month of May it was estimated that companies added 135K jobs to their payrolls. Since then, the estimate has been adjusted to be a little smaller. The implications of this is that information can change swiftly. These are only estimates, and even though they are often fairly accurate, this is not a surefire occurrence. The best current approach is to wait and see and make sure that you are acting on accurate information. You might end up missing big price swings, but this will help you to keep a better correct trade rate going for you, and these small gains can add up over time.