It’s All About The Details
??? Fundamentals
“Trade first, ask questions later!” seems to be the mantra of many currency traders, as better than anticipated U.S. payrolls figures for November sparked a rally in the U.S. Dollar. The Labor Department reported U.S Non-Farm Payrolls rose by a better than expected 146,000 jobs last month, which was well above some analysts’ estimates for a gain of 85,000.
The unemployment rate fell by 0.2% to 7.7%; which is the lowest reading in nearly 4 years. Some analysts expected the November jobs figures to be skewed by super storm Sandy, but Labor Department officials saw little impact on the labor data. Private sector jobs accounted for the entire gain, rising by 147,000, with retailers adding 53,000 jobs.
However, looking at the details of the report, the employment picture still remains tepid. First, employment figures for October were revised lower by 33,000, and September’s figures were initially overstated by 16,000 jobs. Job losses were reported in both construction and manufacturing sectors, shedding 20,000 and 7,000 jobs respectively.
Many traders initially rallied the December Dollar Index futures to 2?- week highs after the headline futures were released; however, gains were pared once the details were released. The slow growth of U.S. jobs combined with concerns of economic turmoil should political leaders fail to reach an agreement on averting the so called “Fiscal Cliff” could result in the U.S. heading back into a recession.
Slow employment growth could also encourage the Federal Reserve to increase its accommodating stance by continuing or expanding its purchases of long-term government debt. This action by the Fed would likely be viewed by some traders and some economists as potentially inflationary and bearish for the value of the U.S. Dollar.
?? Technical Notes
Looking at the daily chart for December Dollar Index, we notice the short-lived price spike after the November Non-Farm Payrolls report was released. This sent prices above the 20-day moving average, but failed to find any short-term momentum buying follow-through, as the headline figures were masking more subdued data in the employment report.
The 14-day RSI has rebounded from near oversold levels and is now reading a more neutral 49.81. Friday’s high of 80.975 looks to be resistance for the December futures, with support found at 79.565.
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