The dollar was up versus the major currencies following disappointing non-farm payrolls numbers, highlighting the difficulties the Federal Reserve faces in reducing US unemployment.
USD
Non-Farm Payrolls Sends Dollar Higher
Disappointing employment data released on Friday sent the dollar higher versus the major currencies as the report from the Labor Department showed a significantly less than expected number of jobs were added to the US economy in the month of January.
Traders were buying dollars as the less than forecasted job numbers did not support expectations of an improving US economy and employment picture. The Bureau of Labor Statistics reported US added 36K new jobs in the month of January. However, economists forecasted payrolls to come in at 138K.
Following Friday’s report, the Federal Reserve is expected to complete its $600 billion quantitative easing program. Despite a strong rally in equities this week with the S&P 500 rising 0.29%, traders were rumored to be hesitant of holding risky positions over the weekend with protests continuing in Egypt which may have contributed to the dollar buying as traders took profits on short dollar positions.
While it may be premature to call a top in the euro’s recent rally, the failure of the pair to move above the 1.3860 combined with falling momentum point to further declines in the pair. Support will be found at the 1.3540 mark, not far from the 100-day moving average. A natural target for the decline may be 1.3480 which is the 38.2% Fib retracement from this year’s bullish move. This level looks to be bolstered as it coincides with the mid-December high. Should the pair continue to fall, the next target would be the 61.8% Fib at 1.3250.
EUR
Debate Rages at EU Summit
European Union leaders disagreed over this weekend’s EU summit after a proposed plan by Germany to increase the competiveness of EU nations on the periphery ran into a roadblock.
In exchange for increasing the European Financial Stability Facility (EFSF), Germany proposed increasing the retirement age in the euro zone, ending the indexing of wages to inflation, and synthesizing taxes at both the individual and corporate level across EU member nations.
As expected, many of the periphery nations disagreed with the proposals that were supported by both Germany and France as the proposed legislative additions to the EFSF goes against many of the social welfare principals that the EU nation’s governments are built upon. Harsh criticism was received from Spain, Portugal, and Austria.
The disagreement among EU members headlines the risk in the euro as the European debt crisis remains largely unresolved. However, traders have been willing to look beyond Europe’s fiscal difficulties and a lack of a political solution while focusing on rising interest rate differentials between Europe and the rest of the developed nations that are still carrying out dovish monetary policies.
JPY
Yen Sells-Off On US Jobs Report
Following the US Non-Farm Payrolls report, the yen was immediately bought versus the dollar with the USD/JPY falling to its lowest level in one month. However, shortly after the data release the pair came off of its lows to trade as high as 82.45, squeezing many traders who were short on the pair.
As the pair sold off earlier in the session, the USD/JPY reached the bottom channel line of the downtrend and reversed its direction a full 180 degrees. A move below the channel line will target the 2011 low of 80.90. Resistance is found in a range between the early December low of 82.30 and Friday’s high of 82.50. Further resistance is located at the falling trend line off of this year’s highs. The levels of 83.70 and 84.50 also stand out.
Oil
Crude Declines Sharply After Payrolls Data
Spot crude oil prices continued their decline following a failure of the commodity to breach above the $93 resistance level after unrest in Egypt sparked fears of supply disruptions in the Middle East.
On Friday the price of spot crude oil fell to its lowest level since January. The declines came after the release of disappointing US Non-Farm Payrolls report presented a bleaker picture than expected. After the release of the employment data traders sold spot crude oil with the price falling to a low of $88.40.
Crude prices may continue to ease should tensions in the Middle East subside. However, a natural gas pipeline that carries gas from Egypt to Jordan was sabotaged and the pipeline remains closed until repairs can be completed.
Support for spot crude oil comes in at the 86.50-87.00 range. Resistance is located at this year’s high of $93.00.
Technical News
EUR/USD
While it may be premature to call a top in the euro’s recent rally, the failure of the pair to move above the 1.3860 combined with falling momentum point to further declines in the pair. Support will be found at the 1.3540 mark, not far from the 100-day moving average. A natural target for the decline may be 1.3480 which is the 38.2% Fib retracement from this year’s bullish move. This level looks to be bolstered as it coincides with the mid-December high. Should the pair continue to fall, the next target would be the 61.8% Fib at 1.3250.
GBP/USD
The failure of the GBP/USD to close above the downward sloping trend line on the weekly chart does not bode well for the pair. However, the daily chart shows the pair found support at the 1.6040 level. The rising short term trend line from the late January lows should also prove supportive. A breach below this could take the pair to the late January pivot at 1.5750. Resistance will be the 2011 high at 1.6280.
USD/JPY
The pair reached the bottom channel line of the downtrend and reversed its direction a full 180 degrees. A move below the channel line will target the 2011 low of 80.90. Resistance will be found in a range between the early December low of 82.30 and Friday’s high of 82.50. Further resistance is located at the falling trend line off of this year’s highs. The levels of 83.70 and 84.50 also stand out.
USD/CHF
The Swissie has come off its 2011 high and the USD/CHF and is currently pressing the 0.9590 level that coincides with a long term trend line which falls from the May 2010 high. A breach of the trend line next week will first target 0.9690, followed by 0.9780. Should the pair fall in-line with the long term trend line this week’s low of 0.9320 will be in play.
The Wild Card
Silver
Spot silver prices have recovered from a 15% decline since reaching an all-time high at $31.20. Forex traders should be looking at an initial resistance near the $29.50 level. A breach of this resistance and the commodity may head higher to the all-time high once again. Support comes in at $28 and $26.40.
