DOLLAR GAINS AS EMPLOYMENT DATA EXCEED EXPECTATIONS
The dollar index gained 45 basis points after the Bureau of Labor Statistics (BLS) released the employment data for January. At the same time, the yields on benchmark Treasury note rose to 2.83%, which is the highest level since April 2014.
According to BLS, the U.S economy added 200K jobs in January while the unemployment rate remained steady at 4.1%. At the same time, average hourly earnings rose by 0.3%, reflecting an annualized gain of 2.9%. Average hour week declined from 34.5 to 34.3.
As is now common, the jobs number differed with those from ADP and Moody’s. On Wednesday, a report by the two firms showed the economy added 234K jobs in January with most of them coming from the services industry.
The increase in hourly wages is a reflection of several factors. First, following the tax reform process, several companies have announced increased wages and bonuses. Secondly, this year, 18 states moved to increase the minimum wage. Third, as the labour market tightens, companies are finding it necessary to increase wages to attract the best talent.
Other major news today came from Theresa May who is currently under pressure about her standing on the Brexit issue. The Tories have accused her of not being honest in the negotiations. Today, she promised that the Brexit transition deal will be agreed in 7 weeks. As of writing, the pound is down by 76 bps against the dollar and down 30 bps against the Euro.
Following the U.S jobs numbers, the dollar is up 90 basis points against the loonie. The pair is currently trading at 1.2363, which is the highest level since Tuesday this week. In the past thirty days, the pair has traded in a 34-pip range with a high of 1.2589 and a low of 1.2248. Traders should now watch the psychologically and technically important level of 1.2400. This level forms an important resistance zone as shown in the chart below.
The dollar rose by 60 basis points against the euro following today’s jobs report. Still, the currency is down 23 bps against the euro for the week. Could today’s impressive jobs numbers be the turning point the greenback has been waiting for?
This week, the pair formed a strong double bottom at 1.2335 and started a tough climb, which faced a strong resistance at the 1.2382 level. Ultimately, it reached a high of 1.2523, which is the highest level since 2015.
If the pair continues to go down, traders should watch out for the 50% Fibonacci retracement level of 1.24275 or the support level of 1.24200.
Today, the euro continued its climb against the Japanese yen. It gained by 41 bps. This week, it has gained by almost 2%. The last time the euro reached this high against the yen was in August 2015. The climb is because investors hope the ECB will start raising interest rates later this year while the BoJ might take a while to move from the negative interest rates territory.