Trading in front of any reports is always daunting.   Trading in front of NFP is downright intimidating.  I don’t trade the data but rather study price action leading into the release so that I can position myself in the market if a trade sets up and confirms.  There’s a big difference between playing a report and trading what you see on the charts.  So that being said let’s take a look at the morning’s set ups before NFP.

Since the NFP is a U.S. Dollar focused event, it’s best to look at the Dollar correlated pairs which means my attention is on the EUR/USD, USD/CHF, GBP/USD, and USD/JPY.  These pairs will be most effected by movement in the U.S. Dollar.

It’s about 2:00pm EST so we already know what happened this morning.  NFP surprised to the upside.  However we can take a look at the four pairs in front of the release. 

Let’s start with the U.S. Dollar.  The goal is to take a reading as to the strength or weakness of the chart.

The Dollar found support but until the current green candle there was little reason to think that that Dollar was anything but neutral to perhaps even slightly bearish according to the brief break of the uptrend line support.  So going into the report, I will take an approach that must assume a neutral to bearish strategy.  However, nothing done without looking at each individual pair.

The EUR/USD and GBP/USD both move oppossite the U.S. Dollar so this means I will be looking for strength on both.

This view at 8:00am EST shows strength which is line line with the slight weakness in the Dollar.  In fact, the EUR/USD even seems slightly more bullish than the Dollar’s weakness would imply.

The GBP/USD has a completely different look.

I look for correlation and for the majors to move in sync with their relationship to the U.S. Dollar and I don’t have this here at all.  So this is where I must question what the charts are telling me.  This is the first strong signal that I should not execute the trades in front of NFP.  But I still have two more majors to take a look at.

Well, the USD/JPY is not helping here at the 8:00am candle is showing strength.  The USD/JPY and USD/CHF should move with the Dollar, not oppossite it.

This look at the USD/CHF seals the deal.  The situation is this…the USD/JPY and EUR/USD are both bullish while the GBP/USD and USD/CHF are both bearish.  These moves are in conflict.  That is the problem here this morning.  Each of the these entries hedges the other — which is not what I want.  For me to take multiple positions there must be correlation or I am simply working again myself.

If I took all four triggered trades, the EUR/USD and USD/CHF would have been losers and the GBP/USD and USD/JPY would have been winners — easy to see in hindsight. 

The decisions to trade any report, but especially NFP, has to be done from complete confidence in what you see in your analysis.  All four of these charts had clean set ups, but the conflict with not only the U.S. Dollar but with each other is what takes credibility away from the set ups.