Talking Points

  • U.S. Dollar: NFPs Top Forecast, Fueling Risk Appetite
  • Euro: Struggles To Hold 50.0% Fib, EU To Draw Up Recapitalization Plan
  • British Pound: Price Pressures Intensify, Rebound To Accelerate

U.S. Dollar: NFPs Top Forecast, Fueling Risk Appetite

The 103K rise in U.S. Non-Farm Payrolls sparked a bearish reaction in the greenback as the positive development spurred risk-taking behavior, and the reserve currency may trade heavy throughout the remainder of the day as equity futures foreshadow a higher open for the U.S. market. Indeed, the better-than-expected print highlights an improved outlook for future growth, but there's still a long way to go for the economy to recoup the 8+ million jobs lost during the recession given the protracted recovery in the labor market. In turn, we may see the Federal Reserve keep the door open to conduct another round of quantitative easing, and the central bank may carry its easing cycle into the following year in an effort to stem the risk of a double-dip recession.

As the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR) fails to maintain the upward trend carried over from the previous month, the reversal from 10,134 should gather pace in the days ahead, and the gauge may fall back towards the 50.0% Fib around 9,828 to test for near-term support. As the relative strength index comes off of overbought territory, we should see the correction gather pace in the week ahead, but a shift in risk sentiment should shore up the greenback as it benefits from safe-haven flows.

Euro: Struggles To Hold 50.0% Fib, EU To Draw Up Recapitalization Plan

The near-term rally in the Euro gathered pace on Friday, with the EUR/USD advancing to a high of 1.3516, but we may see the exchange rate consolidate in the days ahead as the pair struggles to hold above the 50.0% Fibonacci retracement from the 2009 high to the 2010 low around 1.3500. However, as the EU plans to draw up a commercial bank recapitalization plan over the coming days, the increased efforts to shore up the financial system may increase the appeal of the single-currency, and we may see the rebound from 1.3145 gather pace as market sentiment improves. As a result, the EUR/USD may work its way back towards the 61.8% Fib around 1.3880-1.3900, but the single-currency is likely to face additional headwinds over the near-term as the fundamental outlook for the euro-area deteriorates.

British Pound: Price Pressures Intensify, Rebound To Accelerate

The British Pound extended the rebound from the previous day to reach a high of 1.5550, and the sterling may continue to gain ground over the near-term as the economic docket shows an increased risk for inflation. As producer prices in the U.K. accelerate, heightening price pressures dampen the prospects for additional monetary stimulus, and we may see the Bank of England maintain a wait-and-see for the remainder of the year as the fundamental outlook for Britain remains clouded with high uncertainty. As the relative strength index continues to come off of oversold territory, the rebound from 1.5273 should gather pace in the days ahead, and the GBP/USD may work its way back towards the 38.2% Fibonacci retracement from the 2009 low to high around 1.5680-1.5700 as the near-term correction gathers pace.