Daily Analysis | 08 January 2018
US Dollar recovers after NFP Friday US Dollar recovered rather quickly, after a weaker than expected Non-Farm Payrolls figure of 148K release on Friday. The low figure was not expected by most analysts and it could be the case that the harsh winter conditions in the last December days reduced the pace of job openings. Later on, Cleveland Fed President Mester, which will be a voting member of FOMC, considered labor market as strong and job numbers as good. She sees a 0.25% to 0.5% GDP growth, adding to the optimistic scenario and remarked that the Fed was not at a 2% Personal Consumption Expenditure Inflation rate yet, however, expectations are anchored at 2%. On the other hand with no sign of inflation rising, the Fed should keep it’s powder dry, remarked Philadelphia Fed President Harker on a different occasion. He considers two rate hikes as appropriate in 2018, as there are no signs of the economy overheating and considers that it would be helpful if inflation rose above 2% for a while. On Sunday, San Francisco Fed President John Williams, who has a vote in policymaking this year, mentioned that the economy is doing great, everyone expects the Fed to raise hikes gradually and three rate hikes in 2018 would make sense. White House official Hasset, mentioned that there is no need for the Fed to pick up the pace regarding rate hikes in 2018 currently. The EUR/USD rose by 34 pips upon release of the US employment data but quickly surrendered any gains posted and continued to trade in a consolidative sideways manner for the rest of the day and during today’s Asian morning, between the resistance line of 1.2097 (R1) and the support level of 1.1940 (S1). We expect the pair to continue to trade in a sideways manner for the short term with the risks tilted to the upside as there are a number of EUR related data to be released, among them retail sales of November which are forecasted to switch to a positive sign on monthly basis. Should the pair come under buying interest we could see it breaking the 1.2097 (R1) resistance level and aim for the 1.2291 (R2) resistance. On the other hand, should the pair come under selling interest it could break the 1.1940 (S1) support level and aim for the 1.1851(S2) support barrier.
- Support: 1.1940 (S1), 1.1851 (S2), 1.1715 (S3)
- Resistance: 1.2097 (R1), 1.2291 (R2), 1.2355 (R3)
Canadian Dollar Strengthens after good employment report The Canadian employment data for December were also released on Friday afternoon with a surprise figure in employment change of almost 79K and the unemployment rate dropping to 5.7% instead of increasing to 6% as forecast. All these news supported the Canadian dollar on Friday and subdued the average to lower than expected PMI figures also for December. The strong employment data reignited discussions for a potential rate hike from the BoC on the 17th of January from 1% to 1.25%. It should be noted at this point that Governor Poloz in an interview in December implied that he’s not going to pre-warn markets ahead of the next rate hike. The market currently has priced in a potential rate hike at 69.57%, increasing interest in future developments. We may see a more volatile CAD in the next nine days as the potential rate hike will hang in the balance. USD/CAD dropped by approximately 98 pips on Friday mirroring the double effect of weak US employment data and strong Canadian employment data. The pair broke the 1.2450 (R1) support level (now turned to resistance) and continued to trade at lower levels than before the data release, however above the 1.2350 (S1) support level. We expect the pair to continue to trade in a sideways manner with risks tilted to the downside for the short term. Should the bulls take the driver’s seat, we could see the pair breaking the 1.2450 (R1) resistance level and aim for the 1.2520 (R2) resistance barrier. On the other hand, should the bears take the reins, we could see the pair dropping below the 1.2350(S1) support level and aim for the 1.2250 (S2) support area.
- Support: 1.2350 (S1), 1.2250 (S2), 1.2100 (S3)
- Resistance: 1.2450 (R1), 1.2520 (R2), 1.2650 (R3)
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