The US nonfarm payrolls greatly surprised on the upside in October. The US economy added 271,000 nonfarm jobs last month, compared to 185K expected and 142K a month ago. The wages grew at the pace of 0.4%m/m, well above 0.2% m/m, from 0% last in September. The astonishment in US jobs data triggered a broad based rally in US dollar. Last week’s CFTC data showed that speculative USD longs surged to the highest levels since mid-August.
The Fed is preparing to normalise and the market is getting used to the idea of a Fed lift-off by the end of the year. The expectation for a December Fed rate hike surged to 68%.
Following the figures, important technical levels have been breached. Could euro depreciate to parity?
EURUSD took a dive down to 1.0707 on the surprisingly stronger NFP read on Friday. The euro is now clearly oversold against the US dollar; therefore some correction is healthy at the current levels. However, the attention shifts to 1.0500/1.0450 zone now and traders will be chasing top selling opportunities to strengthen their euro short positions moving toward December. Should a potential Fed rate hike is accompanied by an additional expansion from the ECB, the euro-dollar could even target the parity in three to six month period.Pound to slip below 1.50
The pound weakened 3% over the past week on the combination of the dovish BoE (QIR) and a strong jobs data out of the US. It is just a matter of time before a slide below the 1.50 mark as the BoE hawks have relaxed properly, to a point where the expectation for a BoE rate hike has been pushed as far as in 2017. The general belief regarding a fair 6-month delay between the Fed and the BoE policy normalisation has vanished. Cable is expected to extend the bearish trend as long as the 1.5208 resistance holds (major 38.2% on last week sell-off). Below 1.50, the mid-term support could be found at 1.4888 (minor 76.4% on Apr-Jun rise) before 1.4566 (April dip).Gold: $1000 on the radar
Finally gold slipped to $1085 with prospects of further cheapening to $1080. As the US yield curve steepens, the short-term allocation to gold – which pays no interest – is expected to be affected. In this context, a further sell-off to $1000 as USD long positions are built is well on the cards. In longer-term however, with the US inflation target expected to improve toward the Fed’s 2% target rate, the gold demand as a hedge against inflation will certainly safeguard investors’ appeal in gold.