FX Market Summary 03-07-2014: Limited Dollar Payroll Relief

Trading conditions were inevitably subdued ahead of Friday’s crucial US payrolls report. There were gains for the Australian dollar with an AUD/USD move above 0.91 in a continuing short squeeze as RBA head Stevens expressed doubts whether there could be further interest rate cuts.

There was also still a strong underlying Euro tone in Europe with the currency gaining further support from the more hawkish than expected ECB stance on Thursday as the dollar remained generally on the defensive. In this context, EUR/USD was well supported with solid support above 1.3850.

The pair then moved higher ahead of the US open with short-term players looking to take advantage of thin liquidity to trigger stop-loss action on existing short Euro positions. The temptation was made even greater by the existence of long-term downward trend-lines in the 1.3900 area with expectations of heavy stops above. EUR/USD did managed to break above 1.3900 with a high at 1.3914 before consolidation around 1.3900.

The headline US payrolls data was stronger than expected with an increase of 175,000 for February from an upwardly-revised 129,000 for January while the unemployment rate ticked up to 6.7% from 6.6%. The data did help ease immediate concerns surrounding the US outlook.

EUR/USD spiked lower following the release, but there was support at the 1.3850 area with moves lower quickly attracting buying support and there was consolidation above this level late in the European session. USD/JPY held a robust tone and moved to a high of 103.75 before retreating to the 103.40 area.

Sterling held firm into the US employment release with little in the way of domestic factors. GBP/USD launched an assault on important resistance levels above 1.6750 and peaked at 1.6785 before being undermined by the stronger than expected US data which pushed cable back to the 1.6720 area.

The Canadian labour-market data was weaker than expected with  a 7,000 decline in employment for February while unemployment held at 7.0%. USD/CAD spiked higher following the release with a peak just below 1.1100 from near 1.0980 ahead of the data. There was also a sharp drop in copper and precious metals prices which reversed earlier Australian dollar gains as AUD/USD retreated back below the 0.91 level.

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