04:28 GBP Manufacturing PMI (49.0 expected, 49.1 prior, 47.5 to 50.5 range)
The 1st estimate of a number below 50 for sometime, indicating contraction, and just
about the number that was released last month. The -2.0 deviation last month shot the
Pound down about 50 pips in the 1st minute, there was some weakening heading into the
news. Watch out for rumors leading into the reports, they have an equal chance of being
true or false, but if there is a sizable move before the release and the number released
confirms the rumor then don't hang on to the trade too long if you get filled, as a 'sell
the rumor, buy the news' type of price trap is probably occuring. Price headed up right
back to pre-release but then started to sell off again as the New York morning dawned and
moved 200 pips by mid-morning. This indicator has come out lower and lower since February's
release of 62.0, 6 releases in a row lower. It appears almost as if suddenly the economy
just evaporated... So watch out to see if this indicator finally hits some sort of bottom and
bounces a bit. Think of the 50 level as an area of support or resistance, alot like a
standard price chart. August has now rolled over and position squaring is out of the way.
A new month and brand new position taking as summer ends and more participants arrive back.
Traders might start expressing their opinion on this before the actual release, look at the
July release, where most of the move occurred before the number came thru, very little left
to move after that, just a -1.0 deviation was not enough to continue the move. Triggers
as tight as +/-1.2 can work on this, but watch the moves before the release and widen the
sell trigger is Cable sells off before it, and vice versa if cable rallies ahead of the
release (unlikely as this is). If this happens a more conservative deviation of +/-1.8 or
+/-2.0 could be used. LIKEWISE, if cable moves down before the release then you can tighten
the BUY trigger to even something like +0.8. If there is alot of pessimism around cable might
even rally if this number comes out as expected. A +/-1.5 dev hits the outer range of estimates,
so seems appropriate.
-If it comes out at +50.5 or more, GBP/USD should rally 40-70 pips.
-If it comes out at +47.5 or less, GBP/USD should drop 40-70 pips.
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1000 US ISM Manufacturing Index (48.5 expected, 50.9 prior, 44.0 to 52.0 range)
Affliated Reports:
US ISM Prices Paid (55.0 expected, 59.0 prior, 49.6 to 57.5 range)
Another PMI number with an estimate below 50, does appear most of the G7 economies at
least are heading into a double dip. Last month's -4.2 deviation spiked the USDJPY
down about 30 pips in the 1st minute or 2, retracing about 50% after 3 minutes in a
volatile whipsaw price action before downward pressure was again exerted driving this
pair to a 45 pip move 11 minutes after the hour. Some other news then hit about a
possible BOJ intervention and the pair reversed 70 pips higher. So if you want to
catch more pips then move up your stop. This seemed to put a floor under the USDJPY
and by the end of the session it was up 150 pips. The broad market did move from this
one thou as Risk Aversion gripped, so any FX pair or stock index future or Risk
fueled financial instrument did move well. The EURJPY did move down 120 pips in the
same 11 minutes, the AUDUSD did have a nice 45 pip drop over 5 minutes and the Swiss
Franc also gained with USDCHF down 70 pips in the same 11 minutes as the Yen pair moves.
Just be aware Yen and Franc pairs seemed to appreciate in the same pattern, while the
main USD crosses AUDUSD, EURUSD, GBPUSD, NZDUSD will move differently as Risk aversion
can actually strengthen the USD. Sometimes the USD will sell off on a bad number and
for example drive the EURUSD up, this is when the market is trading based on the
Greenback's poor fundamentals, but if Fear and Panic kick in, traders will rush into
the biggest safest market there is US Treasury bonds. The big positive +3.8 deviation
in July did not move the USDJPY up as much as August's -4.2 moved it down. Panic
selling far outpaced it, perhaps some simply didn't believe the high figure, as there
are sometimes tempory distortions as in most statistics. Likewise the -3.6 in June
didn't do much either as it was not low enough to create this fear. A +/-2.5 dev can
work with good slippage control and give a small 10-20 pip scalp, but a better safer
dev is +/-3.5, of course if this one comes out even lower it could induce further risk
aversion...so you might want to trade EURJPY on a Level 2 sell trigger being hit.
*Watch out for the Employment Sub-Component to give further insight into Friday's NFP
if 52.0 or higher then buy USDJPY for a potential 20-40 pip move
if 45.0 or lower then sell USDJPY for a potential 20-40 pip move
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