When Mars hit Earth

USD/CAD, 1 min chart

I aways think that USD/CAD is the most untradable currency pair for news trading. The reason is simple, most Canadian economic data will be released at 8:30 ET when U.S. economic data is also released. Then the movement of USD/CAD after 8:30 ET can be very complex. Even we suppose USD or CAD will respond positively and linearly to the difference between actual data and consensus, we still have 4 combinations of aftermath -- USD+/CAD+, USD+/CAD-, USD-/CAD+, USD-/CAD-. Only when USD and CAD have contrary movement direction, trader can hold his position and let the profit run a little long distance. If we relax the restriction on hypothetic conditions and suppose either currency responds nonlinearly, we will find it is extremely hard to trade USD/CAD in short-term after 8:30 ET, much much harder than trade EUR/USD, GBP/USD, etc., where only USD responds to new economic data.

Well, today we saw a dramatic movement after 8:30 ET of USD/CAD, when U.S. got a very bad trade balance, actual $60.3B to consensus $54B and previous $55.5B, on the other hand Canada got a very good trade balance, actual C$7.3B to consensus C$4.5B and previous C$4.4B. That was I called Mars hit Earth! USD/CAD fell 170 pips within 3 minutes!

When we trade currency, we prefer to buy the strongest and sell the weakest. There are many factors can make a currency strong or weak in short-term, for example friction around key support level or resistance level. In the news front, no other pair can compete with USD/CAD in short-term because of the 8:30 ET effect. However, we need not only analysis and preparation, but also LUCK to make money by trading USD/CAD (loonie) in short-term. In addition, there is a technical difficulty. When all news providers pour their real time reports on U.S. economic data at 8:30 ET, Canadian data may be late in 1 minute. Since Canadian is not so important as American, he can hardly be the first one in a queue.

Saved myself from a massacre

Massacre after NFP, EUR/USD, 1 min chart

As I planned in the post 'European-U.K. session may tell what market thinks', when EUR/USD fell below 1.3215 at 13:00 GMT on Jan 7th, I closed my position which was built in the previous day aiming at possible sooner end of dollar correction in small profit and waited NFP release at sideline. The European-U.K. session obviously told me the recent dollar bulls didn't feel a bad NFP number too risky for them and they were prepared and confident. That market sentiment forced me to abandon strong optimism that dollar correction was close to an end and made me very cautious and prudent to open the next position. Fortunately, my caution and prudence saved me later. I called the aftermath of NFP release was a massacre. Please look at the above chart, which was EUR/USD movement around and after 13:30 GMT. The number was 157K, a little weaker than the consensus 175K. The market was soon in a big chaos and a real battle began between dollar bears and bulls immediately. Anyone who opened new position with a tight stop loss order became the victims of the massacre, no matter his position was short or long.

The actual NFP number can not be called good, well, can not be called bad either, because it had only 18K difference to the consensus and the predominant market sentiment before the number was the recent dollar correction most likely to continue if the actual number was not too bad. I decided to enter market only after EUR/USD made a clear way. My experience told me once such kind of battle had a result, the winner would lead the rate to go farther along their favorite direction. At last, dollar bulls won and the rate dived below 1.3140, former low (also the neckline of an M-form for EUR/USD in daily chart), took my stop entry order set at 1.3135 and fell another 100 pips after that. The reasons I placed stop entry order at 1.3135 were first I would like to see a clear result of the battle and second 1.3135 was technically a significant support level where mass stop loss orders for dollar bears may cluster (market self-fulfillment increased this possibility).

After write down my operation and idea on last Friday, I recommend an article by Barbara Rockefeller in Jan's issue of Currency Trader Magazine, called 'The Big Picture'. This article can be regarded as an continuation of her another article in Oct's issue last year (please search it in my previous post). Both tell readers how market will respond to fundamental news. It is a pity that I couldn't recommend another article in this month's issue because I don't find another informative one.