Financial market research and analysis

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.