Market response to any specific economic data release is far from standard even if actual numbers differ greatly from consensus expectations. Rather the market response is based on context of the current economic situation.
There are many factors and of course the key one for you as an individual trader is your chosen vehicle you are trading (and of course direction i.e. long or short for open positions). The context of today’s impending non-farm payrolls from a market perspective is interest rate expectations going forward. This week the Fed gave the market the expected.25% cut that was already priced into currency, bond and equity market pricing.
The market response however, as this was already priced in, was as a result of the accompanying statement which was not as dovish as perhaps anticipated and a reduction in expectations of a further imminent cut. From an equity market point of view the result, despite the interest rate cut, was to sell off, whereas from the USD perspective this lessening expectation of further rate cuts was bullish. Perhaps this could be viewed as contrary to what the textbooks would suggest is a standard response.
So, Let’s give an example of the Non-farm payrolls (NFP) figure… Logic would suggest that a strong number is good news for the economy, and so should be positive for equities and perhaps bearish for USD.
However, as this may be a critical number in the Feds decision making re. interest rate decisions, a strong NFP may have the reverse impact on sentiment as to what may be expected. Rather than this being positive it could give the Fed a reason not to raise rates at the time expected and may result in a pause for longer.
A weaker number is likely to be perceived as potentially contributory to thinking that another rate cut may be prudent sooner and so despite on the surface being “bad news”, it would not be surprising to see equities stronger and USD weaker.
It remains to be seen of course what any number is and the actual response, it is a little dangerous to try and pre-empt what this may be prior to data release, particularly if you are personally predicting a move away from consensus.
Most importantly, your three key choices with open positions pre-release, often based on the potential severity of response in the context of the current market situation, that of exit the position wholly, partially or ride it out, should be your focus.