Dollar, Gold, Oil: The Payrolls Effect

If Friday's employment numbers are neutral to positive, the greenback should rise and gold and oil may take a hit.
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Overall, this week has not been that exciting. Volume is below average as the big money traders slowly get back into action and wait for Fridays economic data to come out.
We have seen gold, silver and oil put in a nice rally this week, but they are still not in the clear. If we get unchanged or better unemployment numbers we should see the dollar rally. This seems to be exactly what the chart is telling us when we use technical analysis. Here are the numbers for Friday:
7:00 a.m. EST: Canadian Unemployment Rate. Forecast: 8.5%. Previous: 8.5%.
8:30 a.m. EST: U.S. Nonfarm Payrolls. Forecast: 0%. Previous: Down 11,000
8:30 a.m. EST: U.S. Unemployment Rate. Forecast: 10.1%. Previous: 10%.
I have created a table for understanding what economic data move stocks, bonds, the dollar and gold. You can view it here.
Dollar Daily Trend

The current trend of the dollar is now up when looking at the daily chart (higher highs and lows). The strong price thrust in December has formed a nice flag pattern. This is a continuation pattern, meaning that the dollar should continue higher once this pause is complete.

Gold Futures Trading Trend

As you can see from the chart above, gold has made a short-term bottom and is trading at a major resistance level. The question is, does gold reverse and head sharply lower or does it break through the resistance level?

Could this be the start of a new leg higher or a C wave lower (ABC retrace)?I hope it is an ABC retrace, which is a bullish price pattern, and it flushes out the weak positions before heading higher.

These are questions no one knows for sure, but it's crucial to understand where the current price is and that volatility could pick up very quickly in the next couple days. When volatility is about to increase, managing your open positions or adjusting any possible new trades is an important part of being a successful trader.

Rule No. 1: Keep overall risk per trade low.

If volatility is about to increase I usually trade smaller positions unless I am in the zone and feeling the market's each and every move.

Rule No. 2: Never let a winning trade turn into a losing one.
I scale out of positions a little quicker during volatile times to lock in a small profit (20-30% of a position), which minimizes my overall risk. This also alleviates some stress as you now have a small profit and you feel good. Crude Oil Daily Trend

Many of us have had a great run with oil. Some of us traded the

U.S. Oil Fund

(USO) - Get Report

, which is equivalent to buying oil at $71. Volatility was high during the time of the trade, so we scaled out of the position at $75, $77.50 and $80. Some of you still have a small core position still in place, which is fantastic to see!

Currently oil looks long in the teeth and ready for a pullback, which could end up working perfectly with Friday's economic news. Only time will tell, so lets take it one candle at a time.

Commodity Trend Trading Conclusion

In short, this is the first week of the year with light volume as traders get back in the groove and wait for 2010's first big economic news tohit the wires. Not many of us want to stick our necks out just yet.

I don't know what will happen, but my thoughts are that the news will be positive, even if it's really not. Some very well educated individuals think the unemployment numbers are false and are giving everyone the impression that things are getting better when they're not.

Anyways, if the numbers are positive, we will see money move into the dollar, while gold and oil will reverse back down. Stocks may be decoupling from the inverse relationship with the dollar, and if that is the case, stocks should do well.

Trading before big news can be deadly, so I will continue to wait until Friday or next week before doing much.

Chris Vermeulen is Founder of the popular trading sites and . There he shares his highly successful, low-risk trading method. Since 2001 Chris has been a leader in teaching others to skillfully trade in gold, silver, oil, and stocks in both bull and bear markets. Subscribers to his service depend on Chris' uniquely consistent investment opportunities that carry exceptionally low risk and high return.