Monday, January 7, 2019

Surprisingly strong NFPs and a dovish Powell send the Dollar lower

  • Dollar
  • Gold
  • Yen
  • Euro
  • Pound
  • Stocks


Currencies and equities start the week on a positive note after Friday's NFPs beat expectations and Fed's Powell sounds even more bearish. The Euro, the Pound and the commodity dollars push higher even though the US labor market report printed at unexpected highs. Equities rallied after the US data as investors were pleased to see that the labor market still remains the strongest part of the domestic economy. Gold pulled back from its earlier highs while Oil hit $49 per barrel.

The Dollar was not the currency that benefited from the surprise NFP reading on Friday, even though a strong jobs report would generally underpin the domestic currency, with more than 300k jobs added during December. Instead, investors were pleased to see that the US labor market is still humming along, with low unemployment and strong wage growth, hinting that a recession looks like a far-fetched idea at this time. Adding to that, Fed Chairman Powell took a more dovish approach, saying that future rate hikes are data-dependent confirming our expectations for a slow start of the year for the greenback.

The Euro is trading just above the 1.14 mark this morning and its short-term outlook looks relatively positive. The good thing about the shared currency is that the political troubles with Italy and France seem to be receding but for prices to break above 1.15 we will need a fresh positive catalyst. Unfortunately, the fresh data expected from Europe at the start of the week doesn't look too exciting so it may be a slow rise for the Euro towards 1.15 as the main driver for the currency pair right now comes from the Dollar's side. The FOMC minutes' release on Wednesday may reveal some added nervousness among the Fed amid slowing domestic figures so it may provide a further push to the Euro towards the upside.

The Pound benefits from Dollar's weakness on Friday and is now creeping towards 1.28. Nevertheless, the currency's outlook obviously hinges on the Brexit progress; the UK Parliament is expected to vote on May's plan on January 14th, so this week will be the time for MPs to debate on it. Depending on whether any progress in achieving consensus becomes apparent, the Pound will either attempt to break above 1.28 or lose steam and oscillate around the 1.27 figure.

Commodities took diverging paths on Friday with Gold retreating and Oil pushing higher. The yellow metal took a dive after hitting fresh highs time and again during December and a correction seemed logical at some point. At the same time, the strong NFPs somewhat eased the market's concerns about an upcoming global slowdown pushing Gold lower; however, expectations for a slow start for the Dollar during 2019 suggest that Gold will shine again and the level to overcome lies at the $1,300 mark. Oil is trading around $49 at this time as Saudi Arabia's output cuts is the first salvo in what is expected to be a coordinated effort to reduce supply; the level to keep an eye on is the $50 mark and as soon as Oil breaks above it then we should be in for more gains.

Equities had a very positive day on Friday after the robust NFP figures eased market participants' worries about a slowing domestic economy, while Powell's remarks on a “data-dependent” Fed policy suggest that they may slow down their rate hiking schedule - another bullish catalyst for US equities. This morning, futures on both sides of the Atlantic are pointing higher so it seems that the first trading day for the new week will be a positive one.


  • US ISM Non-Manufacturing/Services Composite – 3pm

All times are GMT +4.

Written by Konstantinos Anthis, Head of Research