US Dollar Fails to Respond to Blowout Payrolls Number: What Gives?

US Dollar Fails to Respond to Blowout Payrolls Number: What Gives?

Next to the Federal Reserve’s interest rate decision, non-farm payrolls was the most anticipated event risk this week and it did live up to its reputation of being market moving, particularly on an intraday basis. However the reaction in the US dollar was not what everyone expected; it has puzzled most traders who wonder why a number that doubled expectations could have sent the US dollar to a fresh record low against the Euro and Canadian dollar. The US dollar did rise in the seconds after the release, but the move completely reversed within five minutes. Theoretically the sharp rise payrolls should give the Federal Reserve more reason to keep interest rates unchanged even though the underlying details of the report were somewhat softer. The breadth of job gains (also known as the diffusion index) and average hourly earnings were weaker than expected. The unemployment rate on an unrounded basis also increased from 4.696 to 4.727 percent. Yet these details are probably not the reason why the dollar fell because they do not have the significance to offset the blowout headline number. Instead, the price action in the market today reflects everyone’s unwillingness to buy dollars. Those who want to be long are already long and any “new” positions being taken are mostly on the short side. If the US dollar can’t rally on strong economic data, what will it rally on? We think that the dollar’s rally will come to an end only when the Federal Reserve ups their degree of hawkishness or the European Central Bank cries uncle and finally warns that the Euro’s rally has become too excessive. We may actually get part of this opportunity next week when Bernanke testifies before the Joint Economic Committee. Besides that, the only numbers worth watching in the US are service sector ISM, the trade balance and import prices. At this point, a move up to 1.50 in the EUR/USD is still more likely than a move back below 1.40.

from: dailyfx.com