The US created 74k jobs in December, easing off the previous 241k jobs created last November, and the figure came short of the markets’ expectations that pointed towards a 200k reading. This was very much the highlight, that set the tone for much of the trading in the course of this last week.
The significantly lower reading left investors temporarily wondering if this number could have an impact on the Fed’s recently embarked tapering project.
In reality, the US unemployment rate fell to 6.7 per cent from a previous 7 per cent, and comments early into this week by Atlanta Federal Reserve President, Dennis P. Lockhart, who renewed his commitment to the Fed’s tapering, helped the USD defend itself against further losses. Other Fed officials also sounded hawkish comments and helped to slowly clear the doubts over the pace of upcoming tapering.
A day ahead of the US Payrolls data, last Thursday, the European Central Bank’s announcement of its interest rate decision took the limelight. As expected, the ECB made no changes to its policy rate. While (in line with expectations) no further rate cuts were delivered, a dovish tone from ECB President Mario Draghi, triggered a weakening of the euro before the single currency’s rally on Friday, when the US payrolls data was due.
Draghi said that “the Governing Council strongly emphasises that it will maintain an accommodative stance of monetary policy for as long as necessary”, after the ECB decided to leave the main interest rate at a record low of 0.25 per cent.
Last Tuesday, Advance Retail Sales data from the US for the month of December, positively surprised expectations by a little margin. Yet the actual figure was softer than the previous reading, even after the November reading was revised lower.
Last Friday, the EUR/USD rallied from lows of 1.3574 (seen just before US data) to highs of 1.3699 early into this week.
Taking the broader picture, the euro is still down 0.56 per cent against the US dollar since the beginning of the year.
For the current week the EUR/USD could retest the 1.3771 area after which we expect a sell-off to 1.3580 area.
Resistance at 1.3718/1.3772, support at 1.3580/1.3495.
As would have been expected, due to its sensitivity to interest rate expectations, the USD/JPY slipped to 102.85, after a two-day sell-off that saw the JPY strengthen in comparison to the USD.
Yet on Tuesday, the yen was seen giving back its earlier gains as Japanese investors returned back to the markets after Monday’s Japanese market holiday.
An increased Japanese current account deficit for November, announced early in Tuesday’s session, also helped to weaken the JPY.
For the current week, we are expecting the USD/JPY to remain supported ahead of last Monday’s lows at 102.85. Upward moves are favoured and expected to find resistance at 105.01/105.95.
The Bank of England also made its policy rate announcement last Thursday. The British central bank announced no change to its interest rates and asset purchases in line with the Bank’s forward guidance.
The GBP/USD has eased off the two-year highs reached on the year’s first day of trading and is trading at the price of 1.64492 at the time of writing. The British pound has also strengthened vis-à-vis the single currency, currently trading at 0.8315, after hitting one year lows (0.8230) towards the end of last week.
Last Tuesday, annual inflation eased marginally to 2 per cent from a previous and expected 2.1 per cent; 2 per cent is in fact equal to the BoE’s targeted inflation rate.
This level was touched for the first time in four years. The GBP temporarily weakened just after the data, as the prospect of a tamer inflation might allow the BoE to keep interest rates low for a longer period of time, but the losses were soon reversed.
Towards the end of last week, gold (currently trading at the price of $1,249.30) defied expectations of a move lower. Doubts over an extended upside started to drag the price of the yellow metal lower throughout most of last week, but the softer NFP data however ushered price action higher to $1,255.08, highs seen last Monday.
Most of the push higher for gold came on Friday, the metals rose 1.55 per cent throughout trading on Friday.
Upcoming FX key events:
Today: EZ CPI and US CPI & Philadelphia Fed Business Index.
Tomorrow: UK retail sales, University of Michigan confidence index.
Technical key points:
EUR/USD is neutral. EUR/GBP is bearish, target 0.8050, key reversal point 0.8600. USD/JPY is bullish, target 108.00, key reversal point 97.50. GBP/USD is bullish, target 1.6700, key reversal point 1.5700. USD/CHF is neutral. AUD/ USD is bearish, target 0.8750, key reversal point 0.9750. NZD/USD is neutral.
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Rudolf Muscat is a senior trader at RTFX Ltd.