Forex Trading - Market Update

Commodity Currencies
The main commodity currencies (Aussie, Kiwi, and Cad) are still relatively near the highs of their respective moves against the U.S. Dollar. (View WSJ US Dollar Index) The recent moves in these commodity currencies seem to exhibit a strong degree of correlation with the equity markets. We think that if the U.S. equity markets begin to unwind and risk appetite decreases, then the commodity currencies will depreciate against the U.S. Dollar.

Negative Pressure on Equity Markets
So far this morning there has been significant pressure on European Equity Indexes (Track European Equity Indexes here)

These moves seem to be driven by economic data releases missing expectations this morning. Track economic data releases at Forex Factory

GBP: Manufacturing Production, m/m,   Actual: -1.3%,   Exp: -0.2%,   Previous: 0.0%

GBP: Industrial Production m/m,   Actual: -0.8%,   Exp: 0.9%,   Previous: -2.1%

EUR: German Industrial Production m/m,   Actual: -2.6%,    Exp:-0.4%,   Previous: -1.3%


In addition, Germany lowered their 2013 GDP forecast this morning, which immediately caused a 20+ pip drop in EUR/USD.

This downside pressure on European Equity Indexes has had a negative impact on US stock futures, and should contribute to downside pressure in the US stock indexes throughout the day. If the NFP number disappoints market participants, then the problem will be compounded and may lead to a sell off.

The Trade
If the market reaction to the NFP numbers is negative and equity markets fall, the AUD/USD currency pair should offer attractive shorting opportunities. I've sold at 1.0480, with a tight stop above 1.0515 which is yesterday's high. I like this trade because the risk/reward is excellent, as there appears to be plenty of room to the downside and I'm able to clearly define my risk.