Dollar Shows an Economic Rather than Risk Response to a Poor NFPs Showing

Today’s non-farm payrolls report was a disappointment from both an economic and speculative point of view. The data itself would come in weaker-than-expected and dampen expectations of a robust recovery for the world’s largest economy. However, for traders, the data was a wasted opportunity to spark significant volatility and perhaps even catalyze a meaningful trend for the dollar and/or risk appetite. On the open of the official US trading session, the sting of fear was palpable. By the time New York-based exchanges opened for business, crude oil was already tumbling and high-yield currencies were on the retreat. The Dow Jones Industrial Average and S&P 500 tumbled on the open to feed a general wave of risk aversion. The initial reaction was strong enough to push the S&P 500 down as much as 1.7 percent through the opening hours of trade and weigh crude back to the $80-mark that was so difficult to overtake at the beginning of the week. Naturally, we would assume that with this collective shift in capital that the US dollar would be rallying with equal gust. Yet, in fact, the greenback would break from recent congestion with a tumble to fresh four-month lows. To get a feeling for just how weak the single currency was, EURUSD extended its two-month trend channel; GBPUSD inched up to 1.60 and USDJPY tested lows not seen in 15 years. At such extended levels, it would seem that just a slight fundamental breeze should be sufficient to rouse a modest reversal. Clearly, the currency is under extraordinary pressure.

There are two paths the greenback typically follows when it comes to major event risk like the monthly NFPs report: either the currency responds to the growth implications the data presents, or it will leverage its role as a safe haven with a meaningful shift in confidence. It has been the tendency in recent months that sentiment considerations win out as the primary catalyst for dollar price action – and the selling pressure noted in other capital markets would seem sufficient to confirm a sense of fear. And yet, the dollar’s immediate reaction following the release of the data was an aggressive decline. How do we reconcile this apparent break in a fundamental correlation? The first thing to note is that the capital markets that would post early morning losses later retraced much of their losses. What’s more, these benchmarks are still just off of multi-month highs. Therefore, the argument that a dramatic shift in sentiment had occurred just before the weekend was contended by context. To further analyze the fundamental impact, we have to look at the data itself. The headline 131,000 net loss in jobs through July is a disappointment when measured up to expectations; but in reality, it is a relatively tame monthly figure given the numbers of the past two years. The same can be said of the 71,000 jobs added in private payrolls. Far more important is the ‘bigger picture’ that this data is presented within. With the jobless rate holding at 9.5 percent (just off a quarter-century high), there is little hope to improve employment levels at this kind of pace. This is blatantly puts the US recovery in jeopardy and undermines the argument that the dollar should outperform on the basis of its relative pace of growth.

However the market should interpret data is ultimately the reality that traders should expect. But it is important to realize that tempered growth is a condition that the entire globe faces. On this logic, the dollar can still be labeled depressed; and the market may soon accept this reasoning.

Euro Volatility Dulled by US Employment Focus, Next Week’s GDP Figures Take Greater Responsibility

With the dollar tumbling through the early hours of the New York session, the euro would find natural leverage through the deeply liquid EURUSD exchange rate. When we separate the health of the euro from the performance of its primary counterpart, however, we see a currency that would end the week generally mixed. With the US NFPs on deck, the masses were distracted from the European economic docket. The unexpected 0.6 percent drop in German industrial production was noteworthy as the region’s largest economy is heavily influenced by its manufacturing sector. That being said, the most influential reading for the day was the advanced 2Q GDP reading from Italy. While there was no breakdown for this report, the 0.4 percent growth through the quarter is a boost for the region in general and suggests those EU members that are implementing painful austerity measures could still facilitate expansion. Next Friday, we will receive the full wave of GDP data with EZ, German, French, Spanish and Portuguese readings due. It is important to remember that a strong 2Q doesn’t guarantee a strong second half.

Canadian Dollar Stumbles on a Surprise Drop in National Employment

There is good reason for Canadian dollar traders to follow the outcome of the US employment report as the two nations represent each other’s largest trade partners. Yet, this fundamental link does not simply override the impact that Canada’s own labor data can have on the loonie – especially if there is a significant surprise to come out of it. A surprise we would have. After six months of hearty additions (the previous one a 93,200 increase), a contraction of 9,300 jobs stands out. With an uptick in the jobless rate and drop in the Ivey reading, the response was clear.

British Pound on the Verge of the Next Phase of its Rally with the BoE’s Quarterly Statement on Deck

The sterling has fought for gains these past weeks; and recent hesitation has led many to believe the currency is on the verge of a major correction. However, even with a fear-inducing reading from US NFPs, GBPUSD is still hovering just below 1.60. Next week, we a few indicators are available to catalyze the pound; but it is the BoE’s Quarterly Monetary Policy Statement that holds the real influence.

Australian Dollar Little Surprised by RBA’s Quarterly Statement, Next Week’s Jobs Data Could Revive Volatility

Considering there is debate in the market for even a single, quarter-point rate hike from the RBA over the coming 12 months; it would seem that interest rate expectations should have no bearing on the Aussie dollar. In fact, they do. High return compensates for considering risk. With that in mind, the hawkish lean in the RBA’s quarterly statement on growth and inflation forecasts keeps the fires burning for the currency.

Japanese Yen: Should the Market Simply Ignore the Bank of Japan’s Rate Decision Next Week?

USDJPY glanced the 85 level Friday morning – a conspicuous test of a level that is one step away from 15-year lows and (its speculated) official intervention. It is this extraordinary burden on the economy that officials will reflect on next week when the BoJ meets to decide monetary policy. With exchange rates holding extreme levels, global growth cooling and deficit cutting measures uncertain; further effort may be needed.

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Dollar_Shows_an_Economic_Rather_than_Risk_Response_to_a_Poor_NFPs_Showing_body_Picture_5.png, Dollar Shows an Economic Rather than Risk Response to a Poor NFPs Showing