Forex Trading - Monday, Sept. 10th

Market Update: Monday - Asia Session

On Thursday and Friday we saw a substantial increase in risk appetite. On Friday the EUR/USD daily candlestick opened at 1.2633 and closed at 1.2819, a 186 pip move. I believe the move was mostly derived from reactions to Friday's Non-Farm Payroll numbers. The consensus was for +123K jobs and the actual number came in at +96K, with the previous number revised down to +141K. The market interpreted these numbers as disappointing, and speculation over QE3 increased causing the dollar to sell off.

I think the market is due for a slight correction between now (6:00 P.M. EST) and the end of the U.S. trading session at 4:00 P.M. EST. Here are my reasons:

- I think risk is temporarily overbought. I think risk has plenty of scope to be bid until the Fed rate decision on Thursday, but that a temporary correction is likely. There will likely be a move up a day/session or two before the rate decision, so I favor the correction happening earlier in the week.

- Throughout the summer I have observed the U.S. equity markets (on average) doing well on Fridays, and poorly on Mondays. In my opinion, the fact that we had such a strong move up on Friday increases the chance that we see a correction on Monday.

- The Chinese data released today came in slightly worse than expected (Industrial Production YTD came in at 8.9% versus the consensus estimate of 9.0% and Fixed Asset Investment YTD came in at 20.2% versus the consensus estimate of 20.4%) I believe the upcoming Chinese, Japanese, and Australian data that will continue to trickle in over the next 24 hours will probably come in lower than expected. I would specifically watch out for Japanese GDP and Current account data and Chinese Trade balance and New Yuan Loans data releases. You can check for the data releases here: http://www.forexfactory.com/calendar.php?week=sep9.2012

My Trade: I have shorted EUR/USD at 1.2806 with a stop loss at 1.2840. I think there are stops around and above the 200 SMA and 200 EMA at 1.2840 & 1.2857 respectively. So if price moves in that direction and attempts to flush out stops above the MAs, then I don't want to be holding this trade and will get stopped out at the onset of the stop run. I've set a tentative take profit at 1.2702, because as of right now I don't see further scope for more than a stop run underneath the 1.27 figure before Thursday. I may cover the position prematurely at the end of Monday's U.S. session.




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