Forex Update: Dollar Turns Volatile on Blowout Jobs Report, Dovish Fed

Forex Market Snapshot

Asset Current Value Daily Change
EUR/USD 1.1401 0.07%
GBP/USD 1.2730 0.78%
USD/JPY 108.42 0.72%
AUD/USD 0.7117 1.60%
GOLD 1,285 -0.79%
WTI Crude Oil 47.87 2.22%
BTC/USD 3,756 -0.83%

The week ended with another very active trading day across asset classes, and although risk assets have rallied in general, forex markets have been slightly chaotic. The effects of the flash crash were still apparent, but the bullish US employment report and the dovish words of Fed Chairman Jerome Powell dominated the main markets.

The day started out on a positive note thanks to the better-than-expected Chinese Caixin Services PMI and British Services PMI, but as the Eurozone CPI missed the consensus estimate, risk assets turned lower before the US open. USD non-farm payrolls increased by 312,000 compared to the expected 179,000, while wages grew by the most since 2009 on a yearly basis, while jumping by 0.4% in December.

The Dollar jumped higher together with Treasury yields after the report, but turned sharply lower following Mr. Powell speech, where he took a much more flexible stance with regards to interest rates and the Fed’s balance sheet than before, sparking a very strong short squeeze in stocks.

Technical Analysis

EUR/USD, 4-Hour Chart Analysis

Despite the pullback in the Dollar the EUR/USD pair is still clearly stuck in its long-standing trading range, while hovering near the 1.14 level just before the weekend break. All eyes are still on the 1.1440 resistance level and the 1.13 support level, and we remain neutral towards the most-traded pair from a short-term perspective, while being bearish from a broader standpoint.

While the dovish shift by Jerome Powell could lead to a correction in the Dollar, bond markets already priced out all rate hikes, and the recent trends actually hinted on the possibility of a rate cut this year, and even that failed to push the reserve currency meaningfully lower.

The robust US labor market doesn’t contradict with the global economic slowdown, since the job market is usually lagging economic activity, so we still expect the global bearish shift to be persistent, with new lows in the coming month across risk assets, such as the EUR/USD.

AUD/USD, 4-Hour Chart Analysis

The AUD/USD pair rallied in the wake of the better-than-expected Chinese data, clearing the oversold readings that we pointed out earlier on this week, and a move to the 0.7165-0.72 resistance zone could be ahead. That could provide a short-entry point for longer-term positions, as we expect the downtrend to continue in the coming months.

EUR/JPY, 4-Hour Chart Analysis

The Euro’s relative weakness is apparent also in comparison with the Japanese Yen, as despite the strong bounce across asset classes, the common currency failed to rally substantially against the main safe-haven asset.

That said, given the still deeply oversold momentum readings, a move up to the 125 or even the 125.80 levels could be ahead, with the dominant short-term trendline also being in that area. The long-term downtrend is not in danger in the pair, and traders should be looking for short entry points as the correction runs its course.

Gold Futures, 4-Hour Chart Analysis

Gold turned lower almost exactly off the $1300 level that we pointed out during the weekend, and given the overbought momentum readings, the precious metal might have a deeper correction ahead, with strong support zones found between $1255 and $1260 and in the $1240-$1245 area.

The long-term fundamentals are looking better and better for gold, and we remain bullish from a broader perspective even if the bounce in risk assets could drag the metal lower in the coming weeks, and we expect a rally up to the $1360 resistance following the possible correction.

Key Economic Events on Monday

ChartBook

Forex

USD/JPY, 4-Hour Chart Analysis

GBP/USD, 4-Hour Chart Analysis

EUR/GBP, 4-Hour Chart Analysis

AUD/JPY, 4-Hour Chart Analysis

GBP/JPY, 4-Hour Chart Analysis

USD/CHF, 4-Hour Chart Analysis

USD/CNH, 4-Hour Chart Analysis

Commodities

WTI Crude Oil, 4-Hour Chart Analysis

Copper Futures, 4-Hour Chart Analysis

Major Stock Indices

S&P 500 Futures, 4-Hour Chart Analysis

DAX 30 Index CFD, 4-Hour Chart Analysis

Nikkei 225 Futures, 4-Hour Chart Analysis

Shanghai Composite Index CFD, 4-Hour Chart Analysis

 

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Author:
Trader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.