When you’re trading fundamentals, you need to look a skews. Start by asking yourself some questions:
- What does it mean for the dollar of tomorrow’s non-farm payrolls is weak?
- What does it mean if it’s strong?
If the answer to that question is balanced (eg. up 100 pips if it’s strong, down 100 pips if it’s weak) there is no skew in the market. If not, there is a tradeable skew.
At this point, I think a weak reading (around 100K) isn’t going to hurt the dollar that much more; whereas a strong reading (around 200K) would spark a substantial dollar bounce.
That leaves three trades in my mind.
- Buy the dollar at some point in the next 18 hours and hope for a strong reading
- Buy the dollar on a kneejerk lower if NFP is weak
- Buy ASAP on the headline if it’s strong
Another way to see a skew, and what’s really expected from the market is by looking at more-recent economic data projections.
The consensus for non-farm payrolls remains 165K but there have been 10 estimates on Bloomberg changed in the last two days. The average of those estimates? 150K. At this point, anything about 150K is good news for the dollar.
