JiraiyaSama
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Forex Traders Punish the US Dollar Despite Bullish NFP Data - What Happened?
The US dollar continued its losing ways through end-of-week currency trading, defying stronger-than-expected Non Farm Payrolls data and setting fresh record-lows against the Euro and Canadian dollar. Currency speculators shrugged off the surprisingly positive US economic report and continued doing what they do best—sell the greenback against all major forex counterparts. Overwhelming bearish pressure went against fundamental logic and truly underlined traders’ unwillingness to buy the American currency.
The euro inexplicably hit record-highs of $1.4525 following the NFP data, while the Canadian dollar surged to alleged 130-year peaks of C$0.9323 per US$ following the labor market report. News wires lit up with rumors of sovereign USD selling, but it nonetheless remains clear that there is little rhyme or reason to the day’s price action. Movements were unsurprisingly similar in the British Pound, which set 26-year peaks of $2.0893 through New York afternoon trade.
Highly anticipated Non Farm Payrolls figures came in strongly above consensus forecast, with the domestic labor market adding 166,000 new jobs in the month of October. Analyst estimates of a much more modest 85k gain proved woefully inadequate, and earlier-week ADP Employment Change figures continued to be the best predictor for official results. Yet the bullish data was not enough to prevent a sharp sell-off in the domestic currency. Some claimed that a disappointment in Average Hourly Earnings was enough to offset the positive result in the headline payrolls change, but there is little getting around the fact that the strong jobs gain was unabashedly bullish for the domestic economy.
Counterintuitive reactions to morning economic reports were not limited to forex markets, however, as closely-watched Fed Funds Futures priced in a stronger probability of a US Federal Reserve interest rate cut through year-end. According to the December Fed Funds Futures contract, traders have priced in a 70 percent chance of a 25bp cut through the FOMC’s December 11 decision. Just two days ago the same contract reflected a less than 50 percent likelihood of the same rate change, and speculators are clearly leaning towards further monetary policy accommodation from the central bank. All else remaining equal, the prospects of lower yields can only continue to hurt the US dollar.
Stock markets saw likewise volatile price action through mid-day trade, with an initially bullish reaction to NFP data turning into strong declines through later morning trade. The Dow Jones Industrial Average stabilized just two hours ahead of the close, however, and currently remains just 30 points down to 13,538. A constant stream of poor developments for financial and credit market-linked stocks has kept the S&P 500 subdued at -.2 percent to 1,507. Yet the tech-heavy NASDAQ Composite defied selling pressures and remained 0.4 percent improved to 2,806.
US Treasury Bond Yields continued to reflect lower interest rate expectations for the world’s largest economy, with the 2-Year Note yield falling a further 9 basis points to 3.67 percent. Markets are clearly gearing up for further Federal Reserve interest rate cuts through the medium term, but it will be important to watch fundamental economic developments rolling forward.
Written by David Rodríguez, Currency Analyst for DailyFX.com
The US dollar continued its losing ways through end-of-week currency trading, defying stronger-than-expected Non Farm Payrolls data and setting fresh record-lows against the Euro and Canadian dollar. Currency speculators shrugged off the surprisingly positive US economic report and continued doing what they do best—sell the greenback against all major forex counterparts. Overwhelming bearish pressure went against fundamental logic and truly underlined traders’ unwillingness to buy the American currency.
The euro inexplicably hit record-highs of $1.4525 following the NFP data, while the Canadian dollar surged to alleged 130-year peaks of C$0.9323 per US$ following the labor market report. News wires lit up with rumors of sovereign USD selling, but it nonetheless remains clear that there is little rhyme or reason to the day’s price action. Movements were unsurprisingly similar in the British Pound, which set 26-year peaks of $2.0893 through New York afternoon trade.
Highly anticipated Non Farm Payrolls figures came in strongly above consensus forecast, with the domestic labor market adding 166,000 new jobs in the month of October. Analyst estimates of a much more modest 85k gain proved woefully inadequate, and earlier-week ADP Employment Change figures continued to be the best predictor for official results. Yet the bullish data was not enough to prevent a sharp sell-off in the domestic currency. Some claimed that a disappointment in Average Hourly Earnings was enough to offset the positive result in the headline payrolls change, but there is little getting around the fact that the strong jobs gain was unabashedly bullish for the domestic economy.
Counterintuitive reactions to morning economic reports were not limited to forex markets, however, as closely-watched Fed Funds Futures priced in a stronger probability of a US Federal Reserve interest rate cut through year-end. According to the December Fed Funds Futures contract, traders have priced in a 70 percent chance of a 25bp cut through the FOMC’s December 11 decision. Just two days ago the same contract reflected a less than 50 percent likelihood of the same rate change, and speculators are clearly leaning towards further monetary policy accommodation from the central bank. All else remaining equal, the prospects of lower yields can only continue to hurt the US dollar.
Stock markets saw likewise volatile price action through mid-day trade, with an initially bullish reaction to NFP data turning into strong declines through later morning trade. The Dow Jones Industrial Average stabilized just two hours ahead of the close, however, and currently remains just 30 points down to 13,538. A constant stream of poor developments for financial and credit market-linked stocks has kept the S&P 500 subdued at -.2 percent to 1,507. Yet the tech-heavy NASDAQ Composite defied selling pressures and remained 0.4 percent improved to 2,806.
US Treasury Bond Yields continued to reflect lower interest rate expectations for the world’s largest economy, with the 2-Year Note yield falling a further 9 basis points to 3.67 percent. Markets are clearly gearing up for further Federal Reserve interest rate cuts through the medium term, but it will be important to watch fundamental economic developments rolling forward.
Written by David Rodríguez, Currency Analyst for DailyFX.com
