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Strong NFPs Send Dollar on a Ride - EUR/USD and USD/JPY Higher

By , Currency Analyst
06 December 2013 14:30 GMT

Talking Points:

- November NFPs beat expectations solidly, reigniting taper talk as US Treasury yields surge.

- Japanese Yen suffers the most – USDJPY higher, but not many other Dollar pairs.

- EURUSD trades from in excess of 70-pip range after data.

The November US labor market report was widely anticipated as the most relevant US labor market report ahead of the Federal Reserve’s December policy meeting, and it certainly has not disappointed. The build in anticipation ahead of today’s release was in part due to the government shutdown; many were waiting to see if there were any effects in the pipeline resulting from the fiscal impasse.

Here’s the data lifting the US Dollar and hurting risk appetite:

- Change in Nonfarm Payrolls (NOV): +203K versus +185K expected, from +200K (revised lower from +204K).

- Change in Private Payrolls (NOV): +196K versus +180K expected, from +214K (revised higher from +212K).

- Unemployment Rate (NOV): 7.0% versus 7.2% expected, from 7.3%.

- Participation Rate (NOV): 63.0% from 62.8%.

Strong_NFPs_Send_Dollar_on_a_Ride_EURUSD_and_USDJPY_Higher1_body_Chart_1.png, Strong NFPs Send Dollar on a Ride - EUR/USD and USD/JPY Higher

Market participants have taken the news on both sides of the QE3 taper discussion. Initially, the US Dollar was exceptionally strong across the board, as US yields surged. The 10-year note yield hit a high of 2.929% after the data, after opening the day at 2.877%. However, within the the 30-minutes after the report, any ‘pro-taper’ moves were erased. In fact, a look at the chart above shows that yields are relatively flat on the day. At the time of writing, the 10-year note yield was 2.873%.

USDJPY 1-minute Chart: December 6, 2013 Intraday

Strong_NFPs_Send_Dollar_on_a_Ride_EURUSD_and_USDJPY_Higher1_body_x0000_i1028.png, Strong NFPs Send Dollar on a Ride - EUR/USD and USD/JPY Higher

Charts Created using Marketscopeprepared by Christopher Vecchio

The volatility in underlying yields was evident given the sporadic price action of various US Dollar pairs after the report. The USDJPY, for one, remained elevated, trading from a low of ¥102.23 to as high as 102.90, before settling back at 102.68.

EURUSD 1-minute Chart: December 6, 2013 Intraday

Strong_NFPs_Send_Dollar_on_a_Ride_EURUSD_and_USDJPY_Higher1_body_x0000_i1029.png, Strong NFPs Send Dollar on a Ride - EUR/USD and USD/JPY Higher

Charts Created using Marketscopeprepared by Christopher Vecchio

The EURUSD, only the other hand, traded in a more volatile, approximate 70-pip range. After opening at $1.3644, the pair dropped to a session low of 1.3619, before ripping to a fresh session high of 1.3694. At the time this report was written, the pair was trading at 1.3673.

There may be two key takeaways: first, that an improving US economy bodes well for the US Dollar against the low yielding, safe haven currencies; and because the Fed intends to keep interest rates low for the foreseeable future, there is still reason to be bullish on higher yield, growth-friendly assets.

--- Written by Christopher Vecchio, Currency Analyst

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

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06 December 2013 14:30 GMT