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11 Nov 2014
USD longs: Wash, rinse, repeat
FXStreet (Bali) - On the back of some key reversal signals post US NFP across US vs G10 FX space, and ahead of what should be a quiet start of the week offering few data releases, it seemed logical that an acceleration of profit taking by USD longs could be in store, however, the reality was that buyers emerged again to reset USD longs.
While some Friday reversals in markets such as Gold, Oil, NZD or AUD seemed to be technically legit, evoking the possibility of a deeper retracement in USD longs, there has been three main factors at play weighing on the ultimate irrelevance of last Friday's moves.
Firstly, is that in the big scheme of things, the candles printed on Friday, while not to be ignored, didn't achieve much technically speaking, especially if putting the moves into the context of an ongoing multi-month USD rally. Secondly, the axiom the trend is your friend should be applied when treating a rally as resilient and remarkable as the USD. Thirdly, and most importantly, price action post US-NFP sometimes tends to be misleading, as the participation of algos/HFT (fast money) increases significantly, leading to some short term projected targets (erratic behaviour) depending on the divergence between expectations for that NFP day vs actual data; and since the NFP headline number for last Friday clearly disappointed as market was calling an ambitious +300k (whisper headline), positioning was adapted for that particular day (wash), before the rinse and repeat returned this Monday, reinforcing the idea that last Friday's miss in NFP is not a game-changer for the Fed rates outlook.
While some Friday reversals in markets such as Gold, Oil, NZD or AUD seemed to be technically legit, evoking the possibility of a deeper retracement in USD longs, there has been three main factors at play weighing on the ultimate irrelevance of last Friday's moves.
Firstly, is that in the big scheme of things, the candles printed on Friday, while not to be ignored, didn't achieve much technically speaking, especially if putting the moves into the context of an ongoing multi-month USD rally. Secondly, the axiom the trend is your friend should be applied when treating a rally as resilient and remarkable as the USD. Thirdly, and most importantly, price action post US-NFP sometimes tends to be misleading, as the participation of algos/HFT (fast money) increases significantly, leading to some short term projected targets (erratic behaviour) depending on the divergence between expectations for that NFP day vs actual data; and since the NFP headline number for last Friday clearly disappointed as market was calling an ambitious +300k (whisper headline), positioning was adapted for that particular day (wash), before the rinse and repeat returned this Monday, reinforcing the idea that last Friday's miss in NFP is not a game-changer for the Fed rates outlook.