Post NFP Dollar Bulls Return

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Market Drivers Dec 7, 2015

ANZ Job orders better
Post NFP dollar bulls return
Nikkei 2.25% Eurostoxx 1.42%
Oil $39/bbl
Gold $1082/oz

Europe and Asia:
AUD ANZ Job Adverts 1.3% vs. 0.3%
EUR GE IP 0.2% vs. 0.8%

North America:
No Data

The dollar got its groove back on the first trading day of the week as EUR/USD drifted towards the 1.0800 figure while USD/JPY probed the 123.50 barrier as traders in Asia and Europe reacted to strong NFP data on Friday.

Friday’s NFP results which showed that US economy generated 211K jobs and saw average hourly wages rise another 0.2%, almost guaranteed the fact that the Fed is likely to raise rates at the upcoming meeting in December. However the price action on Friday was mixed as the short covering flows from Thursday kept any greenback rally contained. Thursday’s massive move in the EUR/USD which saw the pair post its biggest one day gain in 6 years still reverberated through the market on Friday offsetting any positive US economic news.

However, today cooler heads have started to prevail as the divergence between US and EU monetary policies becomes even more pronounced and the EUR/USD once again feels the downward pull of fundamental flows.

One other reason for possible euro weakness was the announcement by the PBOC that Chinese reserves declined somewhat by 87 billion dollars. PBOC has been one of the strongest supporters of euro over the past few years as it continued to diversify its reserves into the currency. However, the market viewed the the current decline negatively as it provides the PBOC with less capital to bid for the euro in the interbank market.

Ultimately however, the flows in FX today are starting to reflect the fundamental disparity in the monetary policies of the two largest central banks in the world. Thursday’s short covering squeeze may have been a one day wonder as it corrected much of the skewed positioning in the market.

With no eco data on the calendar, it will be interesting to see if North American traders extend the dollar rally when they open for business, The 1.0800 figure is a natural magnet for stops but if the selling begins in earnest the EUR/USD could quickly fall towards the 1.0750 level as dollar strength reasserts itself.

Boris Schlossberg
Managing Director

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