09, January 2017

Is dollar correction over? Or it may not be a correction at all...

On Friday, US stock markets finished the first New Year trading week on preholiday levels. NASDAQ has updated historic highs as technological DOW closed the day very close to psychological 20,000 points. In the Forex market, US dollar traded very actively, greenback gained then lost then gained again. The major news events of January first trading week appeared to be Fed minutes publication, expectation on Trump administration to pursue pro-growth policy, Trump tweet comments, as well as the most important statistical data for the week - US labor market data.

In our opinion, Nonfarm payrolls report was mixed and some kind unclear and left many analysts stumped at least in the beginning. The common market opinion on the data was formed later some time after release. The data showed that the US economy created 156,000 jobs last month; the figures were significantly below analysts' forecasts of 180,000. However, the upward revision of November jobs number and a difference compared to October data indicates that the data can be considered as positive. Interestingly enough that at release time an analysts view was rather negative, but later changed - according to the same analysts, NFP was positive and pointed to a strong labor market in the US economy. Earnings growth, which is often seen as a pre inflation sign amounted to 0.4%, the forecast was 0.3%.

With regard to the most important opinion – the market reaction to the data was more than restrained. Though US currency recovered all daily losses it only gained to the levels where trading started. Friday US dollar trading left the question open. The question now, after the US employment data and labor market strength as earnings improvement remains intact, is whether US corrective phase is over. There is another possibility that the market doesn’t see the data strong enough. Judging by the first half of today trading session-, US dollar has not returned to its power. We see some European currency gains. Eur/Usd pair is trading around Eur 1.0530. However, from a technical point of view, US dollar index is now trading above the important psychological level of 102. We have already noted that while US dollar index is above 102 psychological level, there is a strong sign and market expectation for further US currency gain and hawkish rate-hikes.

US retail sales data and producer prices (PPI) will be published on Friday. Perhaps just upcoming data deter investors from massive US dollar longs. In general, the current week will be very rich in statistical publications. In addition, the markets expect Donald Trump press conference on Wednesday, and his comments on world trade issue and relations with China.

Earlier in Asia, the regional markets closed positive, amid strong US dollar and positive sentiment about the US economy, which could lead to a demand for goods from Asia. US dollar straight relative to Asian currencies, is viewed differently. On the one hand, it increases the competitiveness of Asian products; on the other it can cause a negative reaction of the newly elected US President, Donald Trump, who had promised to protect the American market.