Think Like A Dealer -

02 October, 2009 by Stephen Leahy

Boston Oct 2, 07:58 EST

We have 32 minutes until the NFP for Sept is released, and it is going to be a sleeper. Sure there will be a swing up and down of 100 pips in EUR/USD over the next hour or two, but we do not believe this release will be a game-changer.

What we have seen in EUR/USD trading in the last few days has been interesting to watch. Earlier this week, a couple of prominent analysts have called for EUR/USD to be topping out. Specifically there was mention of a possible further move higher towards the 1.50xx handle, and then a complete change of direction back to the 1.23xx handle in coming months. I have read this scenario from a number of analysts with differing methods of analyzing the currency markets.

So we have seen EUR/USD sell off this week, but watching the price action told me something about the move. We know there is a difference between active selling, and a lack of buying. there is a different tone to the markets when participants are actively selling by "hitting the bid", and when they are passively selling by placing offers above the market hoping that someone else buys from them. I am sure there are quant researchers out there who can and do track this information for the large money-center Dealing Desks Dealing Desks A dealing desk is the broker’s operational place tasked with monitoring the exposure of the company to market risks. It is run by the risk management team and is typically associated with forex markets, which comprise the largest market share.That said, modern brokers which are offering CFDs on indices, commodities and stocks are also run by dealing desks. Given the round-the-clock nature of the FX market, dealing desks are constructs that are scattered globally.This helps ensure the smoothest e A dealing desk is the broker’s operational place tasked with monitoring the exposure of the company to market risks. It is run by the risk management team and is typically associated with forex markets, which comprise the largest market share.That said, modern brokers which are offering CFDs on indices, commodities and stocks are also run by dealing desks. Given the round-the-clock nature of the FX market, dealing desks are constructs that are scattered globally.This helps ensure the smoothest e Read this Term, but for us, it is visible in the price action and on the multi-bank portal trading screens. It is not easy to see to the untrained eye, and tough to teach even to those watching the market on a daily basis, but that difference of selling (active vs. passive) is real and it tells us a lot about the market's psychology.

so we feel that the sell off in EUR/USD of the last few days has been a lack of buying rather than active selling. What does that mean with regards to the data release in 23 minutes?

There has not been a lot of new short EUR/USD positions put on. There are not a lot of participants worried about getting stopped out on a move higher. The big dealing desks know this and therefore know that any move higher will not be met with immediate market orders and/or Stop Loss orders to buy back the pair. Therefore we see little incentive to drive EUR/USD higher in the short run.

On the other side, we think that any move lower will get a lot more participants interested in going along for the ride and there will be a lot of new EUR/USD sellers jumping on the train before it leaves the station.

So what to do? We think that for an intraday trade, we would look to sell the pair on any move higher just after the data release, but not chase a move lower if the initial movement after the release goes that way.

PS - we closed our "half" long position at yesterday's close right around 1.4550 as per our earlier posts.

PPS - We disagree with many other analysts and still believe that EUR/USD pushes the 1.53xx handle by Thanksgiving.

Stay Nimble!!

Stephen Leahy

Back Bay Fx Services

www.backbayfx.com