Dollar Market Unruffled By Weak NFP Report

Tapering Timeline Unflustered By Soft NFP Report

by Bogdan Giulvezan

Despite a disappointing U.S. Non-Farm Payrolls report released Friday, the US Dollar remained largely unfazed, as the majority of market participants are still hawkish on the start of the asset purchase tapering in November or December.

The U.S. added only 194K new jobs last month, which is way below the analysts’ expectation of 490K, but the previous number was revised to 366K from 235K, while the Unemployment Rate dropped to 4.8% (previous 5.2%) and the Average Hourly Earnings climbed 0.6%, surpassing the forecast of 0.4%. This mixed bag of data created a 50 pip decline versus the Euro, but the greenback made advances against the Yen, reaching the highest since December 2018.

Key Events for the Week Ahead

U.S. banks are closed Monday in observance of Columbus Day and we don’t have anything on the Euro side either, thus price action will be mostly dictated by the technical side.

The action picks up Tuesday with a medium impact release: the Eurozone ZEW Economic Sentiment, scheduled at 9:00 am GMT. This is a survey derived from the opinions of German analysts and institutional investors and acts as a gauge of economic health but its impact is often muted if the actual number matches or comes close to expectations.

Major data comes out Wednesday, in the form of the U.S. Core Consumer Price Index, scheduled at 12:30 pm GMT. This is one of the main gauges of inflation and shows changes in the price paid by consumers for goods and services, excluding energy and food. The anticipated change is 0.2%, while the previous was 0.1%. Rising inflation leads to rate increases, hence the importance of both versions of the CPI (core and vanilla).

Later in the day, at 6:00 pm GMT, the Fed will release the Minutes of the latest Meeting, revealing insights into the reasons that determined their rate vote and possibly some clues about the next hike or the tapering timeline.

The last major release of the week is the U.S. Retail Sales report that comes out Friday at 12:30 pm GMT. Its importance comes from the fact that sales made at retail levels account for the biggest part of consumer spending, which in turn represents the majority of the entire economic activity. The forecast is -0.3%, while the previous was 0.7%.

Technical Outlook – EUR/USD

After successfully re-testing the 1.1615 level, the pair dropped lower, thus turning this level into resistance. The US Dollar is fuelled by speculation that the Fed is approaching a decision to reduce asset purchases sooner rather than later and this seems to overshadow otherwise important elements such as an NFP report that misses expectations.

Friday’s drop was largely erased, which shows that bearish pressure still prevails but the RSI is already bouncing on the oversold level and the MACD lines are coming closer together. These factors warn about a move higher, which could find resistance in the 1.1600 – 1.1615 area when or if it materializes. On the downside, the pair may find support at the confluence zone created by the bearish trend line seen on the chart and the psychological support level at 1.1500.