ForexSpirit

There has been a movie quote running through my head all day ever since the NFP numbers were released this morning.

It took me a while to remember where the quote comes from. After a couple of hours of it running through my mind I realised it was a line said by William Wallace in Braveheart, when he was leading the line of Scotsmen as the English cavalry bore down on them:

“Hold…. hold…. HOLD…. HOOOLLLLDDDDD!”

There are two sort of patience needed in trading. One is being patient in staying out of the market when it is not conforming to any of your entry criteria.

The second type of patience is in letting a trade you’ve entered have the necessary room to breath. This is obviously essential if you want to have that trade go for a substantial number of pips over a prolonged period of time. Along the way you must ride the pullbacks and corrections. You don’t want to be bucked from the potential trending move too early.

Trichet was pretty hawkish after yesterday’s ECB press conference. On hearing his remarks I got on board EUR-USD in the low 1.46 area. On Wednesday I added another long position on AUD-USD at 0.87.

I have quite a few entries percolating away on these two currency pairs now. My average entry on EUR-USD is sitting at 1.4665, while on AUD-USD my average entry point is at 0.8840.

We didn’t have any dramatic fireworks as a result of this morning’s NFP numbers. The headline employment number came in at 94k, slightly above the consensus estimate range of 70-85k, but probably below what many thought might be the number given the mid-week ADP figure of 189k. Being below 100k it has a marginally negative tone for the US dollar, although I don’t think it will have much impact on the Fed rate decision next week. This mildly negative tone was counteracted by the 0.5% increase in Average Hourly Earnings, signalling wage inflation at work.

With the largely uneventful NFP out of the way all eyes now shift to next week’s Fed interest rate decision on Tuesday. A 25 basis point cut is the expected decision and it is for this reason that I’m holding my current trades open. A rate cut points to a weaker dollar and if the rate cut expectation remains in place on Monday and Tuesday morning then we should see that dollar weakness be factored in (shades of buy the rumour, sell the fact at work).

I have seen some pretty convincing arguments put forward by market commentators as to why a 50 basis point cut is the right thing to do. I think there’s a greater likelihood of a 50 basis point cut than no cut. If the Fed remains on hold it would be a strong bullish sign for the dollar but would cause the equity markets to tank. Also, no matter how often Treasury Secretary Paulson goes on about a strong US dollar being in America’s best interest, they are not at all bothered by the current dollar weakness. The dollar is the first thing to get fed to the wolves. The Fed doesn’t quite have the same credibility as the ECB in regards to their focus on keeping the value of their currency in check.

Pending US Home Sales on Monday morning could provide a fly in the ointment if it causes any additional carry trade unwinding or exacerbation of the credit crunch storyline. If the actual data release comes in close to the expected number then I think we’ll just see everyone continue to focus on the Fed announcement.

In the meantime, if there are no other market moving news flashes, I’m just going to keep on holding.

Hold.

HOLD!