US dollar reclaims Friday’s losses

US dollar claws back losses from soft NFP

The US dollar fell on Friday after an ultra-soft Non-Farm Payrolls print, but not markedly so. The dollar index reclaimed most of its intraday losses to finish just 0.11% at 92.12. These losses have reversed this morning, with the index creeping 0.10% higher to 92.20, leaving the index effectively unchanged post-payroll.

A US holiday today is sapping liquidity and almost certainly had a similar effect Friday, limiting losses. However, the fall in unemployment to 5.20%, and data indicating rising wages and swaths of unfilled jobs, could have taken the edge of the Non-Farm shock.

EUR/USD probed 1.1900 on Friday but retreated by the session’s end to be unchanged at 1.1880, easing to 1.1868 in dull Asian trading. EUR/USD has now formed a triple top at 1.1910, and although dips to 1.1850 should be supported, EUR/USD has wood to chop at 1.1910 before we can talk about a return to 1.2000+. GBP/USD closed at 1.3870, having probed 1.3900 post payrolls. GBP/USD should find support on dips to its 50-day and 200-day moving average (DMA) around 1.3810. The 1.3980/1.4000 area remains the key resistance region.

AUD/USD and NZD/USD powered 0.60% higher on Friday before retreating by 0.30% and 0.15% to 0.7435 and 0.7140 this morning. Until the US returns tomorrow, AUD/USD looks likely to trade in a 0.7400 to 0.7500 range. Cases in New Zealand fell to 20 today for the second day in a row, suggesting the country is on track for a fast reopening. That will support Kiwi on dips to 0.7100, leaving it on track to rise to 0.7300 later this week.

USD/CNY fixed at 6.4529 today, right on expectations. Somewhat surprisingly, the PBOC net-drained liquidity at the repo, although US strength generally has seen USD/CNY drift higher to 6.4545. The fixes will take greater importance going forward, with a significant deviation from the norm potentially signalling more China easing measures are on the way.

USD/Asia is mixed this morning, with liquidity impacted by the US holiday. The US Non-Farms data will take the Fed taper pressure of regional currencies, for now, allowing them to continue the V-shaped recovery of the past two weeks. The Non-Farms miss should greenlight an increase in appetites by international investors for ASEAN equities once again, and potentially some carry trades. That should be supportive for regional currencies this week.

Overall, the price action is rather less US dollar downbeat than I would have surmised after the US employment data on Friday. Part of that is due to the US holiday, I am sure. I would prefer to wait until the US returns tomorrow to form a stronger opinion, but given the scale of the downside miss, it is hard to see the dollar rallying this week. If anything, the downside is the greater risk.

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