Position-Squaring ahead of U.S. NFP Reverses USD CHF

Profit-taking and position squaring ahead of Friday’s U.S. Non-Farm Payrolls Report helped form a daily closing price reversal bottom in the USD CHF on Thursday.

This could be something minor or it could be the start of an overdue correction. It all depends on how traders read Friday’s U.S. employment report.

Traders have been driving down the Dollar/Swiss on speculation the U.S. Federal Reserve will implement additional quantitative easing measures as early as next month. Traders have been positioning themselves for the move by the Fed, but are uncertain as to how big the asset-buyback will be.

Bearish Dollar/Swiss traders took precautionary measures on Thursday just in case tomorrow’s employment report misses pre-report guesses. There is no question that the Fed will add stimulus money, but if the jobs report comes out better than expected, no one wants to get caught short in an oversized position.

Economists are looking for the September Non-Farm Payrolls report to show that the labor market is languishing. Wednesday’s weaker-than-expected ADP employment report indicated that the labor market could be contracting. Employers may not be firing a lot, they certainly aren’t hiring.

Total non-farm payrolls are expected to fall by 8,000 – 10,000 in September. The government continues to release more temporary Census worker jobs than are being created by the private sector.

The most important number to watch is private-sector hiring. Economists are forecasting an increase of about 85,000 jobs.

Technically, the USD CHF is in a downtrend, but Thursday’s reversal bottom could either trigger a 2 to 3 day rally to 50% of the last swing down or fuel the start or an even bigger retracement.

The current range is .9843 to .9554. This makes the retracement zone at .9699 to .9733 the first potential upside target. More sellers could show up in this zone, leading to the start of a break to new lows.

If this area is exceeded on the upside, then traders may take a run at the last swing top at .9843. A trade through this level will turn the main trend to up on the daily chart. Don’t look for a spectacular surge to the upside since gains are likely to be limited by a major downtrending Gann angle at .9870.

The size and direction of the next major move in the USD CHF will be determined by the September Non-Farm Payrolls Report. Hitting the guess or missing a better than expected report is likely to trigger more short-covering. If the report is worse than expected, then look traders to step up the selling pressure on the U.S. Dollar.