U.S. Non-Farm Payrolls Disappoint, Dollar Weakens Across the Board

The breakdown of the report showed manufacturing jobs fell 27K after slipping 35K in November, with government payrolls tumbling 21K after rising 4K in the previous month, while the participation rate weakened to 64.6% during the month from 64.9%. Indeed, the data reinforces a dour outlook for private sector spending as households continue to face a weakening labor market paired with tightening credit conditions, and the Federal Reserve is likely to maintain its current policy at its next meeting on January 27 at 19:15 GMT.

The FOMC is widely expected to hold the benchmark interest rate at 0.25% this month as the central bank aims to balance the risks for the economy, and may keep borrowing costs at the record-low throughout the first-half of the year as policy makers continue to see a risk for a protracted recovery. A Bloomberg News survey shows all of the 71 economists polled forecast the MPC to keep the key rate unchanged, while Fed fund implied probability index shows a 54% chance for the central bank to hold the rate, which has fallen from 64.0% in the previous week.

Meanwhile, the U.S. dollar weakened across the board following the dismal employment report, with the EUR/USD exchange rate rising to a high of 1.4415. However, the rally in the euro-dollar appears to be losing steam as the 30-minute RSI crosses into overbought territory, and we may see price action hold along the 20-Day SMA at 1.4397 as the pair maintains the narrow range carried over from the end of December. As a result, we may see the EUR/USD continue to trend sideways ahead of the European Central Bank interest rate decision next Thursday as investors weigh the outlook for future growth.