Mixed Reactions in the US Dollar to the Non-Farm Payroll

Release: US Employment Change (Jan): 243K
Consensus Forecast: 150K
Previous: 203K
Revised from: 200K

Release: Unemployment Rate (Jan): 8.3%
Consensus Forecast: 8.5%
Previous:8.5%

Anytime we get above forecast and above 200K employment change and decline in unemployment, we get welcoming sign for the US economy. Risk appetite usually leads to pressure for the USD. Indeed we saw that against the commodity currencies like USD/CAD, AUD/USD and NZD/USD where dollar weakness was apparent right after the release although there has not been a follow through yet in the following hour.

However, we have a different reaction in EUR/USD, GBP/USD, USD/CHF, and USD/JPY. Here we see USD strength take over after the initial USD-weak move. Let’s take a look at the technical setups (of the pairs in bold) and levels to monitor after this positive Non-Farm Payroll release.

*Bollinger Bands here are 3 standard deviations from the 200SMA

EUR/USD

The 5-min chart shows a market that the market’s initial reaction was to the upside but immediately found resistance as the 1.32 barrier proved to be too strong. The subsequent reaction was bearish and the market fell below some common lows near 1.3070. If the current support at 1.3065 brings a pullback, the market still remains bearish if it stays below 1.3150 near the 61.8% retracement of the reaction range. Above that, the market will continue to be ranging, which means, the previous direction, an uptrend will likely continue next week.

To the downside, we have targets at 50% retracement of the late January swing at 1.2930. Then the 61.8% retracement at 1.2856 coincides with the pivot area around 1.2850, and is a key area of support to break before the bearish continuation case gets clearer. To the upside, a break above this week’s high at 1.3233 opens up 1.3436(50% retracement of the Oct-Jan dip). Above that an important trendline and 61.8% retracement coincide near 1.3630.

GBP/USD

The Sterling was falling against the greenback to ahead of the NFP release. Then a rebound attempt was quickly faded and the market dipped further lower. In the 5 min chart we see it go from over bought (upper bollinger band) to oversold (lower bollinger band*). We see a correction taking place already, so you can say bearish direction is not clear.

It should be noted that a break below 1.5780 breaks an important pivot as well as a rising channel, so the price action does so far signal a bearish market if we can extend below 1.5750. Then 1.57 will be an important pivot to clear before opening up 1.5560 (50% retracement of the January rally, and 200 simple moving average in the 4H chart.) A more aggressive target is the 1.5480 (61.8% retracement). The bearish scenario is valid as long as the market does not pop from 1.5750 back up above 1.5820.

USD/JPY

This USD strength is most clear in the USD/JPY pair. It had been consolidating in very tight range after falling to 76.00, where intervention chatter started to support the pair. The 5 minute chart shows that the market has climbed more than 50 pips in an hour and half since the release, and continues to follow through while other USD-majors are consolidating. Clearing above 76.55 pivot opens up the 77.30 level. Above that, the 78.25 resistance. A throwback extending below 76.50 however will reflect continuing pressure to re-test 76.00, and possibly the record low near 75.55.

USD/CAD

Poor Canadian employment data first weakened the Loonie, and the USD/CAD climbed above the parity level. However, the positive NFP actually gave commodity currencies especially the Canadian Dollar strength. The USD/CAd fell right back below parity, and continues to follow through after a brief consolidation. 0.9890 is the next support pivot to the downside before opening up 0.9750 area, and even the 2011 low at 0.9405. On a pullback, inability to break back above 1.0 should add to the case for the bearish scenario.

AUD/USD

After the initial reaction which was US Dollar-negative, the AUD/USD had some trouble breaking above the week’s highs near 1.0755. However, it is now following through, and breaking above an important pivot at 1.0763. This opens up the record-high set in 2011 at 1.10793. As we seen in the 5 min chart, this outlook can be confirmed if a subsequent throwback stays above the 1.0720 pivot down tot he 1.07 psychological barrier. The bearish outlook is shelved if the market can stay above, otherwise, a break below 1.07 begins discussion of consolidation and possible reversal.