Friday's positive nonfarm payroll report created an interesting response in that the US dollar was able to gain against its major rivals including the euro, pound, and yen - those three of course part of the central bank printing club.
This suggests to me that the market is pricing out expectations of quantitative easing and we saw that initially with a plunge in gold that occurred following the the release.
However gold had a very volatile response as it managed to recoup its losses coming back up to $1710 in the subsequent New York morning trading.
The better the labor market the less rationale the Fed has for undertaking another round of quantitative easing.
JPY Suffers as Investors Don't Feel They Need Safe Havens
At the same time equities were higher following the release and general risk sentiment was better as can be seen by the increase in commodity currencies (AUD, NZD, CAD) against safe haven Japanese yen.
Can We See Both USD and Commodity Currency Strength Going Forward?
Usually will risk on tone and better equities tend to weaken the USD as it is a safe haven and has a low yield and therefore is used as a funding currency for carry trade strategies. However with the market pricing out further QE the USD managed to gain against key rivals.
Therefore it'll be interesting to see this juxtaposition of both US dollar as well as commodity currency strength as we move into next week and throughout the rest of March trading.
Generally we should see commodity currencies gain against the USD in an environment where the US economy is providing support for global growth. However we may also see the USD continuing its assault against the JPY.
And depending on how the economies of Europe and UK develop - and whether more QE will be needed from the BOE or more loans to its financial system from the ECB which both boost the balance sheet of those respective central banks - the USD may have a fundamental positive factor going forward in the next few weeks.
Nick Nasad is a macro economist, market analyst, and educator; and one of the main contributors to FXTimes - provider of Forex News, Analysis, Education, Videos, Charts, and other trading resources.
Information and opinions contained in this report are for educational purposes only and do not constitute an investment advice. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness. FXTimes will not accept liability for any loss of profit or damage which may arise directly, indirectly or consequently from use of or reliance on the trading set-ups or any accompanying chart analysis.