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After US NFP, DXY surges toward the $100 target

A strong US dollar is bumping into old resistance levels after great jobs data and another day closer to the Fed’s rate hike. The forex pairs we follow are positioned with a slight risk-on bias but flows into the yen and Antipodeans but out of the euro, and CAD show that nothing is clear cut as traders get ready for the weekend and de-risk.

Market Wrap

US nonfarm payrolls, private payrolls, and average earnings data contributed to today's rise in the US dollar index. According to the survey, all three data points exceeded market expectations. In addition, all metrics for the previous month were revised higher.

The US dollar index surged higher on the data release but as it approached the weekly market structure resistance it ran out of upside steam. At the time of writing it looks like the price action has come all the way back down to test the low of the NFP m15 candle but that is also above the 50-period moving average so I am expecting a bounce to the upside still.

678,000 new jobs is the highest monthly increase in 11 months and only topped by last February’s 704,000.

The US Bureau of Labor Statistics reported that nonfarm employment increased by 678,000 in February. During February, the unemployment rate fell by 0.2 points to 3.8%. The labor force participation rate increased by 0.1 points to 62.3%. The leisure and hospitality sector added 179,000 jobs during the month. 95,000 jobs were added in the professional and business services sector, followed by 64,000 jobs in the health care sector.

The average hourly earnings for all employees on private, nonfarm payrolls increased by one cent from January to $31.58 in February, a 5.1% year-on-year increase. The figure is good but under the market expectations of 5.8%, so the Fed won’t directly think there is an inflationary wage spiral right now.

Fed member Evans said that the jobs levels have been quite good for some time and that doing 25bps hikes at each meeting may be more than needed. We should expect the FFR to be targeting 1.75%-2.00% by the year end. This is purely hypothetical as the new follow up comments are always that there is a lot of uncertainty regarding the Russia/Ukraine situation, where once before COVID-19 was a concern. These global macro themes will be used as an excuse for what some fixed income watchers are calling a potential Fed policy error.

Ukraine announced that they plan to have third round of talks with Russian officials over the weekend. Though Russian officials have been calling on Ukraine to meet all of their demands before the fighting can stop.

The EURUSD was pushed to the lower identified level of interest that I have been mentioning over the last couple of days. 1.0900 is still a great psychological target for the bears to capture but I am expecting some short-term trading to bounce from here as profits are taken ahead of the weekend. No one should feel safe holding into the weekend especially when the Volatility Index (VIX) is stable at 32 and the world indices have sold off across the board this week.

The worst performing indices this week come from European bourses, if we disregard the Russian Index. The DAX is down -10% this week, with the Italian 40 lower by -5.62% today.

My base-case hypothesis for USDJPY is still intact on the higher timeframes and the ActivTrader sentiment indicator suggests that buying the dip is still a good idea currently. For short-term traders the market flowed to the yen at the US futures open and after the great NFP numbers were followed by the Russian Ministry of Industry who said that, proposals for halting exports of fertilisers is likely due to logistics. This would be detrimental to global crop growth.


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