After a stunning end to the trading week on Friday, traders could be forgiven for taking a pause for breath this morning. The risk rally got a massive boost from the ECB on Thursday, but it was the US jobs report that blew everyone’s socks off.
After what was surely the biggest data surprise in history, there are so many questions now being posed. Will the US bounce back in a V-shaped recovery? Longer dated yields have spiked higher (with a yield curve bear steepener). It is early days, but it could now begin to support the dollar. The risk recovery has gone so far in a very short space of time (at least in the past two weeks, it could be time for at least a near term pause. There is an FOMC meeting on Wednesday with new economic projections. This payrolls report may induce a significantly different set of projections and potentially statement than previously expected. How will this play into expectations of monetary policy stimulus? It could depend upon how much the Fed trusts this data which was such a massive surprise. In the meantime, traders may just begin to view this rally with caution. Equity futures for the US are steady this morning, but slightly lower on European markets. The dollar has not yet managed to sustain its gains from Friday, and is weakening again slightly. Oil is up once more after OPEC+ agreed to extend its production cuts through for another month.
EURUSD reversed lower on Friday. My near term view is for a lower EURUSD but I’ll be watching DXY closely for resistance in order to return EURUSD bullish. Resistance for short entry is the high volume level from Thursday at 1.1344. Downside levels to keep in mind early this week are 1.1239 and 1.1148.