Dollar is finally back as it seems and it’s back with a shout. The US currency was on focus last Friday due to the Non-Farm Payrolls report which is always regarded as the most important report of the FX universe and set the tone for the weeks to come. And this time it was all in favour of the buck which gained across the board on the back of the bullish printing.
The US jobs report revealed that during the previous month the US economy added 280k jobs beating analysts’ expectations while the average hourly earnings also printed in a better than expected fashion at a 0.3% growth rate. It goes without saying that this news excited traders than didn’t miss out on the opportunity to get rid of their previous anti-Dollar positions and pile on the US currency. The European majors posted significant losses and we believe that this could be a turning point for their outlook.
The report served as a confirmation signal for the Fed that everything in the economy is moving at a favourable pace and their plans for raising the key interest rates in the next months are in line with the progress in the domestic labor market. There are already voices that suggest that the central bank will move forward and tighten their rate policy sooner than expected but we still believe that the September meeting appears as the most likely timing for liftoff.
The rest of the major currencies were in the backseat following the NFP report and gave up some of the ground they had gained during the past couple of weeks. The Euro came off its 1.1300 highs to trade below the 1.1100 area and it seems pretty clear that the currency’s outlook points lower. It’s not only the bullish bias behind the Dollar that weighs down on the Euro but at the same time the bearish sentiment caused by the lack of progress in Greece’s negotiations with its creditors puts the Euro under more pressure. The next stop for the Euro seems to be the 1.1000 floor.
The Cable had a similar trading action on Friday when it dropped from the 1.5400 levels of last week to trade as low as 1.5200 on the back of the NFP report. The currency was able to partially recover from this decline overnight and we find it trading around the 1.5270 area this morning but we see little reason for the British currency to change its direction. There are no news scheduled for release from the UK at the beginning of the week hence we believe that the Cable will look to retest the 1.5200 support area.
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