The dollar is soaring around 1.4700 against the euro, 1.6200 versus sterling and 88.00 against the yen following the report on US employment published last Friday. The report shows that US companies have cut far fewer jobs than expected in November, which proves the idea that the labour market across the Atlantic is stabilising.
The US economy "only" shed 11,000 jobs in the last month, the lowest since the start of the recession in the US in December 2007. In addition, job losses were revised down for the months of October and September.
The unemployment rate fell to 10 per cent, after reaching 10.2 per cent in October, which was its highest level in the last 26 years. These announcements have boosted the US dollar and global equity markets, as investor expectations that the US Federal Reserve will raise interest rates sooner than anticipated increased. The strong employment statistics for November could deter some investors from continuing to use the dollar to finance risky assets to yield more interest.
These figures showing the stabilisation of employment in the US follow the resumption of growth in the third quarter of 2009, after four consecutive months of contraction. Since the entry of the US into recession in December 2007, 7.2 million Americans have lost their jobs; the Fed has reduced its main rate at a level close to zero in December 2008 and pumped more than $1,000 billion in the economy. The week ahead will be very important with monetary policy meetings of the Swiss National Bank and Bank of England.
The Swiss National Bank is in focus today with its interest rate decision. The central bank is expected to keep rates on hold and maintain unconventional measures to fight deflation risks, despite recent data pointing towards signs of recovery. The intervention stance will also likely be affirmed. In the United Kingdom, market attention for the week will focus on the MPC decision today. The policy rate and size of the QE will almost certainly remain unchanged at 0.5 per cent and £200bn respectively.
We are currently at a key technical level in the EUR/USD.
The EUR/USD 55-day moving average has held since April (red line) The EUR/USD trend line support has held since March (blue line).
A lot of market participants could bail out of their long EUR/USD positions should we see a break of sub 1.4800. The 55-day moving average and trend lines are the most favourite technical tools of those market participants.
Upcoming FX Key events
There are a number of central bank decisions to look out for: SNB (today), BoE (today), Riksbank, Norges Bank and Fed (Wednesday).
FX Technical Key points
EUR/USD is bearish, target 1.4300, key reversal point 1.5150
USD/JPY is bullish, target 98, key reversal point 80
GBP/USD is bearish, target 1.5050, key reversal point 1.7000
USD/CHF is bullish, target 1.1000, key reversal point 0.9950
AUD/USD is bearish, target 0.7800, key reversal point 0.9400
NZD/USD is bearish, target 0.6200, key reversal point 0.7650
Mr Longchamp is head of trading at RTFX Ltd.
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