Non Farm Payrolls Lifts Dollar

Dollar Index Surges From 18 Month Low

The Non Farm Payrolls data was stronger than expected but not all that strong. It came in at 209,000 with positive revision to previous months and right in the markets sweet spot. The number at once reaffirms current economic outlook and relieves the market of some near term fear. The fear, that the FOMC will raise interest rates again, this year and/or too soon. The reality, the FOMC has indicated no rush to raise rates again and this figure does very little to push them in that direction. It keeps them on track, it just doesn’t accelerate the time line.

Internals of the report are also positive. The unemployment fell a tenth to 4.3% and the lowest level in 16 years while labor force participation hovers at post-recession highs. Both numbers suggesting ever tightening labor markets. The really positive number within the report is the average hourly earnings. Monthly growth was tepid at 0.31% and well below what the Fed would call alarming while YOY growth was modest at 2.5% suggesting that the consumer is getting stronger as well.

The dollar made the largest move on the news, surging nearly 1% from a 1.5 year low. The move is no guarantee of reversal but a positive sign for dollar bulls. The index created a long green candle moving up from strong support and engulfing the 4 previous candles. Momentum has shifted to the upside with a bullish crossover on the move indicating additional upside should be expected in the near term at least. Upside target for resistance is just below $95 at the 30 day exponential moving average and may be strong.

Looking forward there are headwinds facing the dollar. For one the NFP is a only one report and to date other signs of strength have done little to reinforce hawkish outlook or bullish behavior. For another ECB outlook is also firming and could easily undermine the impact of today’s data. The ECB has already indicated a willingness to begin discussing taper and the beginning of easy-money policy unwind, positive data will bolster that outlook firm the euro and drag on the dollar.

The EUR/USD is showing signs of reversing as well. The pair moved up to a 2.5 year high prior to the release and then fell hard in the aftermath. The candle created on the daily charts is a bearish Dark Cloud Cover backed up by bearish crossovers on MACD and stochastic. The candle created on the weekly chart is a wickedly sharp pinbar/shooting star confirming resistance at the top of the 2.5 year trading range. Without something to support it the pair is likely to fall to support levels with targets at 1.1500 and 1.2500.