The greenback rallied sharply against the majors following the release of the highly anticipated April labor report, popping above the 105-level against the yen to a two-month high at 105.69 while climbing to a one-month high versus the euro at 1.5363. Although the non-farm payrolls revealed a loss of 20k jobs for April, it was considerably less than the estimated loss of 80k, versus a revised 81k of job losses from March. Also benefiting the greenback was an unexpected improvement in the unemployment rate, which eased 5.0%, defying calls for an uptick to 5.2% from 5.1% a month earlier. Following the labor report, Fed funds futures were pricing in an 86% likelihood that the FOMC will remain on hold at 2% when it next meets on June 24-25th.
The Fed announced plans to further ease tightening global credit conditions just prior to the release of the April jobs data. The Fed, in conjunction with the SNB and ECB, announced it would increase the size of the Term Auction Facility (TAF) to $150 billion. The coordinated effort is another step in providing liquidity to the markets since the FOMC will likely hold off on further easing given the aggressive rate cuts over the past year.
In addition to the labor report, US economic data included March revised durable goods orders, which improved to 0.1% from -0.3%, and factory orders, posting a reversal to 1.4% from -1.3%.
We expect the dollar rebound to extend into next week but view it as more of a corrective move rather than a reversal. Support for the euro is seen around 1.51, which marks the 100-day moving average. We view the 1.53-region as good interim support to initiate a long position in the EURUSD pair.