Mixed US Jobs Report Erodes Dollar Gains, CAD Soars

Michael Moran, Senior Currency Strategist at ACY

10.01.2022 12:15 pm

#stocks

Summary: Happy 2022 all, may the year ahead be better for all in every aspect of our lives. Great to be back in FX, which promises much for the year ahead. Happy days indeed. Over the weekend, the Euro outperformed, rebounding to 1.1360 in New York on Friday, from 1.1297. The catalyst was a mixed US Non-Farms Payrolls report combined with a surprise rise in Eurozone inflation figures. In December, the US economy created a less-than-expected 199,000 jobs, well under the median forecast by economists at 420,000. November’s Payroll report was revised higher. The Jobless Rate fell to 3.9% from 4.1%. Elsewhere, the Eurozone’s December Inflation rate hit a new high at 5%, beating estimates at 4.8%, and higher than the previous month’s 4.9%. US Treasury bond yields rose, with the benchmark 10-year note settling at 1.76% (1.72% Friday). The 2-year treasury yield was up one basis point to 0.86%. Germany’s 10-year Bund yield climbed 2 basis points to -0.05% (-0.07%). The Dollar Index, which measures the value of the Greenback against a basket of 6 major currencies, slid 0.6%to 95.74 (96.22). Against the Canadian Loonie, the US Dollar tumbled 0.84% to 1.2642 from 1.2710 on Friday. Canada’s economy created a total of 54,700 jobs last month, bigger than median forecasts at 24,500. The USD/JPY pair eased 0.32% to 115.55 (115.95). Sterling (GBP/USD) rallied to finish in New York at 1.3595 from 1.3540. The Australian Dollar was little changed at 0.7180 (0.7173), failing to take advantage an overall weaker Greenback. Against the Asian and Emerging Market currencies, the US currency was mixed. USD/SGD (US Dollar-Singapore Dollar) slid to 1.3553 from 1.3598 while USD/THB (US Dollar-Thai Baht) climbed to 33.64 (33.50).
Stock markets were weaker as risk appetite waned on the increased likelihood of higher yields due hot global inflation. The DOW was finished 0.2% lower to 36,240 while the S&P 500 lost 0.6% to 4,677 (4,712). The tech heavy NASDAQ slipped to 15,585 (15,835 Friday).
Other data released on Friday saw Japan’s Annual Household Spending in December fall to -1.3% from November’s -0.6%. Germany’s December Industrial Production eased to -0.2%, lower than forecast at 1.1%. UK Construction PMI rose to 54.3, against expectations of 53.9. Canada’s Unemployment rate in December was at 5.9% from 6.0% the previous month. US Average Hourly Earnings (Wages) climbed to 0.6% in December from an upwardly revised November read of 0.4%.

EUR/USD – The shared currency charged 0.51% higher to 1.1360 on Friday from its opening of 1.1297. Overnight the EUR/USD pair traded to a high at 1.1365. Earlier in the week, the Euro traded to 1.1378, its high so far for 2022. Overnight low traded was at 1.1272.
USD/CAD – Stellar Canadian employment data boosted the Canada’s Looney to finish as the strongest major FX versus the Greenback. The USD/CAD pair slid to 1.2624 from 1.2710 on Friday in choppy trade. Overnight high traded for this currency pair was at 1.2731.
USD/JPY – Against the Japanese Yen, the US Dollar eased to 115.55 from Friday morning’s 115.95. Despite the higher US bond yields, a generally risk-off stance in markets on Friday weighed on this currency pair.
AUD/USD – The Australian Dollar had a lacklustre performance against the generally weaker Greenback, finishing at 0.7180 from 0.7174 Friday. Overnight peak for the AUD/USD pair was at 0.7186. While the overnight low traded was at 0.7130.

On the Lookout: Data wise, the week ahead starts off slowly today but picks up mid-week and culminates with a busy finish. In Asia, Japanese markets are off today (Coming of Age holiday). Other data released today are Australia’s Preliminary November Building Permits (f/c 0% from -12.9% - ACY Finlogix). The Eurozone kicks of Euro area data with its EZ November Unemployment rate (f/c 7.2% from 7.3% - ACY Finlogix), Italian November Unemployment Rate (f/c 9.3% from 9.4% - ACY Finlogix). The lone US report released tonight is the November Wholesale Inventories (f/c 1.2% from a previous 2.5% - ACY Finlogix).

Trading Perspective: Following a strong finish to the first week in 2022, the US Dollar lost much of its gains over the weekend. Much of this was due to the Euro’s rebound, triggered by the surprise rise in Eurozone inflation. The lacklustre US December Jobs report also sapped the Greenback of its early 2022 vigour. Expect Asia to kick off with the overall weaker US Dollar trend albeit keeping similar trading ranges. Economic data releases scheduled in the week ahead, culminating with US PPI and CPI will determine the Greenback’s next direction. On the day, expect the Greenback to trade heavy with any topside rallies limited. It would also be helpful to gauge the market’s positioning based on data that will be released later in the week. In the meantime, my overall preference is to sell into USD rallies.

EUR/USD – Expect the shared currency to trade within recent ranges with a bid tone. On the day immediate resistance lies at the overnight high of 1.1365. A break of that sees 1.1385 which is strong. Above 1.1385 sees us back above 1.1400 to potentially 1.1430. Immediate support for today is found at 1.1340 followed by 1.1320. Look for the shared currency to stay bid today. Likely range 1.1335-1.1385. Trade the range today, we will see more in the week ahead.
AUD/USD – The Australian Dollar managed to eke out gains against the Greenback to finish at 0.7180 from 0.7173 on Friday. Overall bearish sentiment on the Aussie Battler has weighed on the currency and prevented it from climbing further. The bearish sentiment is still intact, but the speculators are running well short. Immediate resistance lies at 0.7185 (overnight high 0.7186). The next resistance level is found at 0.7200. Immediate support is found at 0.7155 and 0.7130. Likely range today 0.7140-90. Just trade the range shag.
USD/CAD – Contrasting employment data (strong Canada, weak USA) pushed this currency pair to finish close to its overnight lows. The Greenback settled at 1.2642 Canadian Dollars (1.2710 Friday). For today, immediate resistance can be found at 1.2670 followed by 1.2700 and 1.2730. Overnight high traded was at 1.2731. On the downside, immediate support is found at 1.2620 (overnight low 1.2624). The next support level lies at 1.2590 and then 1.2560. Look for consolidation with a likely trading range today of 1.2600 to 1.2700. Prefer to buy USD dips, don’t want to get carried away with Looney strength at current levels.

(Source: Finlogix.com)

USD/JPY – Against the Japanese Yen, the Greenback eased to 115.55 from 115.95 on Friday. Despite the rise in US bond yields on Friday, the mixed US employment report and generally risk-averse markets weighed on the USD/JPY pair. For today, immediate support can be found at 115.50, 115.25 and 115.00 (strong). Immediate resistance lies at 115.80, 116.05 and 116.35. Look for USD/JPY pair to trade a likely range of 115.30-116.30. Preference is to buy dips. Japan Inc is out today, could be a choppy one.