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Busch: Currency Playbook for the Employment Report

Euro coin in front of the giant symbol of the Euro outside the headquarters of the European Central Bank.
Thomas Lohnes | AFP | Getty Images
Euro coin in front of the giant symbol of the Euro outside the headquarters of the European Central Bank.

Here's a simple strategy to play Friday's employment report using the euro and the dollar.

Let's do a simple playbook for US employment on Friday using EUR/USD.

If nonfarm payrolls are greater than 225k, then sell EUR/USD.

If they are less than 225K, then buy EUR/USD.

I think scenario #1 has the biggest potential payout.

Why?

EUR/USD still has big problems with growth, and the European Central Bank should ease by cutting rates by this summer. The two-year yielddifferential is growing in favor of the dollar and is at 16.7 basis points.

Technically, there is an uptrend channel that has the lower channel support at 1.3130 and a classic head and shoulders pattern forming with the neckline at 1.3035. If the 1.3130 breaks, then we'll have a great chance that the 1.3035 breaks. The break of the neckline should generate a 500-point drop.

Sell EUR/USD at current spot (or 1.3200 if we get a bounce before the data on Friday.) Set a stop/loss at 1.3427, above recent highs, and a target of 1.2550 - a big move to the downside.

Andrew B. BuschDirector, Global Currency and Public Policy Strategist at BMO Capital Markets, a recognized expert on the world financial markets and how these markets are impacted by political events, and a contributor to CNBC's Money in Motion Currency Trading.You can comment on his piece and reach him hereand you can follow him on Twitter at http://twitter.com/abusch .

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