The drop seen in the dollar this week has put it in a state of short-term oversold. With that in mind, the down-side in the very immediate future looks to be limited without first seeing some type of retracement. Significant market moving events such as today’s US jobs report can act as a catalyst for forging a low proceeding a bounce. Non-farm Payrolls is consistently the most volatility producing economic release of each month. Bad NFP as best scenario With that said, the most ideal scenario is to have NFPs print materially lower than expectations. This would almost certainly spur additional dollar selling in the minutes following the release. However, given the sharp declines seen this week the risk of selling resulting in a washout and reversal is high. Very high in my opinion. Adding further to this is support in the US dollar index by way of a pair of sloping lines and the 200-day. Take a look. Good NFP, what now? What if we get a big beat and the dollar rallies? In this case we will be alleviating some of the oversold conditions and it is likely dollar sellers will step back in at some point. This doesn’t look as juicy of a scenario as the first one. In line NFP, how about now? What if the number is close to in line? Then we probably don’t see the kind of volatility we like to see as traders and no significant trade will develop. An early start to the weekend may be in order. This is obviously the least juicy scenario. Bottom line to trading NFP – It’s about the fade Even if we take away the current oversold conditions, fading the initial move within the first 30 minutes or so following NFP is often times the correct trade. It doesn’t always work, but more often than not it is a sound strategy. Managing risk on these trades can be a bit tricky. One way to do so is to wait for the turn to take shape before entering and then use the high/low pivot of the move (depending on direction of fade) as a reference point for setting stops. The edge on this type of trade diminishes significantly beyond today, so any trades taken on this end will be liquidated ahead of the weekend. Non-farm payrolls are expected to be 190k, unemployment rate steady at 5%. Average hourly earnings 2.2%.

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