Monday, December 7, 2009

Forex Market Outlook: Strong Rally in the Cards For US Dollar

The job market, which was bleeding since January 2008, seems to have hit the bottom, with the economy losing very few jobs in November. The retreat of the jobless rate should add to the comfort. In reaction, oil is climbing and the safe haven gold, which has been having a scintillating run in recent weeks, is giving back some ground.

The Labor Department’s monthly non-farm payroll employment report showed that the economy lost 11,000 jobs in November, notably lower than the 111,000 jobs shed in the previous month. . Economists had estimated a loss of 114,000 jobs. October’s job loss was initially estimated at 190,000. At the same time, the unemployment rate edged down to 10% in November from 10.2% in October. Average hourly earnings rose 0.05% to $18.74.

Friday’s Nonfarm payrolls really surprised investors. Analysts were expecting a decline in jobs by 130 thousand while the publication showed only a drop by 11 thousand! The news caused high volatility on the currency markets. The EUR/USD instantly tumbled all the way to $1.4945 and this was the first positive reaction of the dollar to better than expected macro news. Affected were also emerging markets’ currencies including the Złoty, which appreciated very quickly.

The employment situation in the US has been dire since the onset of the worst financial crisis in decades, even as other parts of the economy have shown signs of coming around. With Friday's data suggesting the jobs market may be on the mend, the Fed may be compelled to lift interest rates from near zero sooner than previously imagined. 
The Japanese yen was the most hurt currency after these data instead of the greenback this time as the greenback interest rate outlook has improved after the data. USD JPY closed the week well above 90 psychological level and in spite of the European currencies losing versus the greenback they could make new highs of the week versus the Japanese yen EURJPY close the week at 134.34, GBPUSD at 148.82 and CHFJPY at 89 
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