On Friday the NFP report monopolized traders’ attention as everybody was anxious to find out how the US labor market fared over the past month since it is the number one condition for the Fed to decide to pull the trigger and raise rates by the end of the year. Market participants were prepared for a strong NFP reading but the actual figures that we posted surpassed their expectations.
With 271k new jobs added over the past month, unemployment down to 5% and average hourly earnings rising 0.4% there not much more that the US economy could have done to show progress. It is now very likely that the Fed will move ahead on December and raise rates however we remain cautious and have to stress that for that to happen we need another month of clear skies, no reasons for concern and no headwinds and that might be too difficult to happen.
At any case traders quickly reacted to the fresh US data and priced in the now increased probability for a Fed rate hike pushing the Dollar significantly higher against all the other majors. The Euro, the Pound and the other FX currencies printed fresh lows as traders looked to load their pro-Dollar positions on the back of the report hoping for a higher interest policy by the end of the year.
Taking a look at the price action, the Euro took another plunge after the NFP report hit the wires and after having retested the 1.0900 resistance moved rapidly lower and printed a 1.0700 low. The bias is clearly to the downside with the US economy going from strength to strength and the ECB intending to ease further to help stimulate growth there is only one way for the Euro and its’ lower.
The Single currency is trading around the 1,0760 area at this time and might see a bounce at some point especially since the currency is oversold to the extreme and this week will be light on US data but any rallies to the upside should be treated as opportunities to the sell the currency higher. As we move closer to December traders will look to load their Dollar trades even more so we could see the Euro moving towards the 1.0600 and 1.0500 levels.
The Cable was on the downside as well on Friday with the NFPs pilling on the pressure for the Pound that disappointed traders last week when the Inflation Report revealed skepticism among the BoE policymakers. The US report pushed the Cable to fresh lows and the 1.5200 support gave way with the Cable printing a 1.5030 low on the back of the NFPs. The bias is mixed here and we say that because even though the UK policymakers are concerned with global conditions the domestic economy is doing well and this will be reflected on the currency’s rate.
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