Traders place their bets on strong ISM and it pays off

If you like to read the headlines then you’ve probably come across something along the lines of "Dollar rallies as ISM index unexpectedly rose". While I’m not denying the fact that the higher than expected ISM numbers caused the Dollar to surge today, I don’t know if you could say that it was the main cause.

If you look at your charts, you’ll see that the dollar actually started making its run early this morning; way before the ISM report even came out. In fact, the dollar gained almost 150 pips against the Sterling prior to the report. And with analysts all over the media saying that they were expecting a flat ISM number, I just don’t see the reason why the dollar surged.

Now I’m never one to question the market because it is too complex to figure out, but I just wanted to point out that even though the headlines say the rally was due to the ISM report, you can’t just blindly follow their lead.

So what then was the underlying cause for the dollar surge today? Who knows and to tell you the truth; who cares? You’ll never have all the answers as to why the market does what it does. Just remember that you must always follow the markets; not the media!

With that said, what exactly IS the market telling us? Even with today’s crazy dollar run, the markets still aren’t telling us much. Open up your daily charts on the majors (except for the Yen because that pair is a lone ranger right now) and you’ll see that the pairs are still just bouncing back and forth in a range. There are no clear trends yet so it’s still hard to tell where the market wants to go.

Historically, the dollar has usually made nice gains (especially against the Euro) in January, so this might be the start of another one of those runs. It’s still early to tell because even with the positive ISM number today, ADP employment was unexpectedly low. If this is any indication to the Non Farms Payroll, then we might see the dollar fall right back to where it was on Friday. Anything can still happen so don’t be too quick to start buying up your greenbacks!

Coming Up:

ISM Non Manufacturing Index
10:00 am ET; 15:00 GMT
Previous= 58.9; Consensus= 58.0; Forecast Range= 57.0-58.5

Chart Analysis:

EUR/USD

The Euro has made a run towards its 200 SMA on the 4hr chart but hasn’t quite reached it. 4hr stochastics is heading into oversold territory but we may see a little more selling pressure. If the Euro can break its 200 SMA (currently at 2136) then I the pair will probably drop down to 2100. If the momentum is good, the pair may even drop to its 38% Fib line on the daily chart, which it failed to reach the first time it retraced down.

Trade Idea:

Short at 3130; Stop Loss= 3150; Target 1= 3100; Target 2= 3050

GBP/USD

The Cable fell nicely and has bounced off of its 200 SMA on the 4hr chart. 4hr Stochastics is oversold right now so we could see a move up which would coincide with the 200 SMA support level. However, the daily stochastics has crossed down and we could see more downward movement. I have 2 possible trade ideas. One for a short trade and one for a long trade.

Long Trade: Buy at 9560; Stop Loss= 9520; Target 1= 9600; Target 2= 9650

Short Trade: Short at 9450; Stop Loss= 9500; Target 1= 9400; Target 2= 9350

USD/CHF

The Swissy once again reached its 61% Fib line on the daily chart which is also right around the 50 SMA. 4hr Stochastics reached overbought and seems to be heading down but daily stochastics is pointing up. The charts are telling me the pair could go either way so I’m going to set some trades on both the long and short side. For a long trade, I want to see if the pair can break the 61% Fib line and 2300 at the same time. If this happens I think the pair will hit its 100 & 200 SMA on the daily chart which is right around 2350. For the short trade, I think if the pair breaks below its daily 50 SMA, I think it will go to at least its 50% Fib line.

Long Trade: Buy at 2310; Stop Loss= 2270; Target= 2350

Short Trade: Short at 2230; Stop Loss= 2260; Target= 2200

USD/JPY

Ok, I’ve just about ran out of breath because of the number of days I’ve been screaming for this pair to go back down. The Yen is just acting on its own right now and I don’t feel comfortable entering a trade just yet. However, like the charts have been telling me, the Yen still looks prime for a nice drop. Both daily and 4hr stochastics have hit overbought territory and seem to be heading down. My first guess is that the pair will hit its 50 SMA on the 4hr chart which is right around 118.80