The Dollar Sell Off! A Rate Hike Already Priced?

The big day is approaching fast and traders are concerned how they should position themselves. Yes, we are talking about the US Non Farm payroll data which we always consider the most important piece of economic data which can rattle the entire global markets- from developed to emerging markets. Such is the power of the green back and investors wants reassurance that the rally for the king dollar will continue before they pile more long bets. Given the recent weakness in the dollar, it has shaken some traders that the rally is standing on its last leg and perhaps it is for the best to book some profit. It is not bad strategy at all because if you are not sure about your position, you should shift that money to a place where your confidence is supporting your agenda.

The question really is not that if the rally has come to an end for the dollar, but you should think more and peel some layers to get the exact question correct. If you are trading with a long term perspective and you are not fortified by small moves in the market, then surely the trade for the dollar could be going long, because believe it or not, a rate hike is coming soon and although it is some what priced in, but there will be still enough momentum to push the dollar higher. Any sell off till then, could be a buying opportunity for the traders.

If you love volatility, then you will be glad to know that it could notch up when the unemployment data will be released tomorrow. Given that the manufacturing and ADP employment data was soft this week, expectations are not really for a thrilling number. Of course, the focus will be towards the wage number and if we do see more weakness in both numbers, a natural trade under that circumstance could be to sell the dollar across some major currencies. This will be another excuse if you want to book some profit but on the flip side an opportunity to buy at the bargain price if you have a long term view.

We have raft of economic data due this morning in the U.S. Jobless claims data, trade balance and factory orders will all hit the wire today. But for us, we believe that factory orders will be an important element which should be given more attention as this will determine the employment equation and other elements which are attached to it. Once again a weak reading may only bring a small sell off as the odds are stacked in favour of consolidation ahead of the US NFP data and day traders will not dare to roll over their positions to next day, as this represents too much risk. On the other hand a hefty print could make the future foundation of the dollar rally more stronger.

Disclaimer: The above is for informational purposes only and NOT to be construed as specific trading advice. responsibility for trade decisions is solely with the reader.