Disappointing NFP Reverses Major Pairs

Disappointing NFP Reverses Major Pairs
October 7, 2015

 
After last Friday’s abysmal job report in the United States (NFP Report), we saw reversals in most currency pairs. The pair leading the charge was the USDPJY, which went from below 119 on Friday, to trading above 120.50 on Monday. Effectively breaking the Friday high made before the release of the NFP report (Non-Farm Payrolls).

The reason for such a U-turn is because the market was betting that the Fed was not going to hike rates this year. This implies that equities will break higher as there is a strong correlation between interest rates and equities. If the interest rates do not move higher, it isn’t negative for stocks. Therefore, if the data that comes in is lower than expected, (as was the case on Friday), stocks will rally on expectations that the Fed won’t be hiking.

USDJPY is a currency pair that is heavily dependent on what the Dow Jones and S&P500 are doing. So when stocks started to dismiss the release, USDJPY was the first one to turn.

The move was so powerful that it also turned the EURUSD. This pair went from above the 1.1300 level all the way down to 1.1170 on a Monday, a full on bearish price action.

This week should see even more confusing signals as Thursday will see the FOMC’s (Federal Open Market Committee)release of its minutes. We have to consider that these minutes will refer to the meeting before Friday’s NFP. However, that meeting is the one in which the Fed announced it won’t be hiking rates (the September meeting). The tone at the press conference was pretty bearish, but this wouldn’t be the first time the Fed sends out one message at the press conference and another one in the minutes meeting.

I am still looking for a lower EURUSD pair. This is because the technical view shows the pair needs to trade below 1.1100 in order to conclude with a contracting triangle visible on the daily chart. However, we may only see consolidation until the FOMC release.

Another item of great interest this week will be the Canadian jobs data on Friday. I am expecting the USDCAD to trade lower until the news/release, with 1.30 acting as a pivotal level.

As for the USDJPY, now that the 120 level has been reached, it seems to be only a matter of time until 122 or even 123 level arrives. It is going to be a fairly interesting end to the trading week, considering jobs data in Canada as well as FOMC minutes are yet to be revealed. Therefore, expect ranges to hold until Thursday and then everything to go wild.

Sammy

Sammy

Sammy is our forex expert, with over 20 years experience in the financial sector, she will be keeping you up to date with the ups and downs of currencies around the world


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