05 January 2018 at 15:16 GMT
- Nonfarm payrolls disappoint, USD shrugs it off
- EURUSD breakout fails
- Canadian jobs data boost loonie
Loonie takes flight: US jobs data came in short of expectations but a Canadian beat led CAD higher versus the majors. Photo: Shutterstock
By John J Hardy
Key developments in FX today
- The US jobs data put the greenback on the defensive briefly, but the big dollar bounced back quickly, suggesting the market didn't find the data sufficiently weak to drive another leg of USD weakening just yet and the bounce has been sufficiently robust in places (especially USDJPY) to argue for more near-term strength. Closing levels today after the US ISM non-manufacturing data are a key setup heading into next week.
- EURUSD tried to take out the highs in reaction to the tepid US jobs data, but failed and consolidated back lower in the wake of the data, and in fact we are seeing a broad reversal in nearly all EUR pairs after its recent strength, perhaps due to the weaker-than-expected flash Eurozone core CPI data point today that missed with a +0.9% reading (versus +1.0% expected).
- The action in the Canadian dollar was unambiguous, as another massive payrolls number saw a strong boost to CAD across the board as the market prices in a more hawkish Bank of Canada at coming meetings.
EURUSD probed the top of the range once again after the tepid US jobs data before easing back again, keeping tactical bears' hopes alive. The next zone of interest to the downside is 1.2000-1.1950 if the selloff continues, as sustained price action back below this level argues that we are mired in a range for now, perhaps eventually at risk of probing the sub-1.1600 lows.
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Source: Saxo Bank
USDJPY has nearly fully reversed the latest selloff, neutralising the downside threat that had developed (but which never got very interesting as 112.00 corralled the action). This latest swing higher puts the upper range back in focus, especially the 114.50-plus top if US long yields ever start to show signs of life to the upside.
A not often covered cross, but one whose latest dramatic selloff bar, if price action is sustained back below 1.5000-ish, argues that the market is getting tired of bidding up euro relative to other currencies that are showing stronger signs of life in central bank policy anticipation terms.
Also worth noting here is the fact that Canadian short rates have shifted some 35-plus basis points higher since the beginning of December and today's strong Canadian jobs data further heightened anticipation of a more hawkish Bank of Canada. The selloff could bring the pair down toward 1.4500 in an environment of a generally weaker euro.
— Edited by Michael McKenna
John J Hardy is head of FX strategy at Saxo Bank