Friday (08/01/2016), EUR/USD fell slightly after the release of a satisfactory jobs report in U.S. The pair ranged between $1.08022 and $1.09326 before settling at $1.09252, little changed from the opening price of $1.09298.
Chart D1 showing a long shadow and short body candle indicates that price slumped before rebounding. In first half of the session, U.S dollar rose sharply due to the following accounts:
First, investors continue to seek safe assets concerned by possiblities of stock falling again
Within a week, the circuit breaker has been triggered two time in Monday (04/01) and in Thursday (07/01) as China stocks tanked. Similar scenario is afraid to arise again in the week last session. Before the open of Chinese Stock Exchange, the greenback grew strongly as investors poured money into safe assets, waiting for the market responses.
Second, non-farm payrolls exceeded expectations.
On Friday, the US Labor Department reported nonfarm payrolls in December to be increased by 292,000 jobs, jumping from the previous prediction of 200,000. The unemployment rate continued to be stable at 5% since October, the lowest level for seven and a half years so far.
In December, before the Federal Open Market Committee (FOMC), Fed Chairman, Janet Yellen said that it takes at least 100,000 new jobs to accomodate for the losses in the economic crisis. The minutes of the meeting published on Wednesday showed an unfixed schedule for Fed hikes and it seems that officials will have their decisions based on economic data in determining the amplitude and the time of tightening in 2016.
5 minutes after the promising report, dollar rebounded, appreciated against the euro by 0.5%, bringing the pair to its lowest level of the day at $ 1.08000.
The U.S Labor Force Participation rate rose 0.1% to 62.6% in December, but still hovering within its lowest level for 40 years. This ratio remaining low in such a long time may hamper economic growth while the US labor market is currently in full employment state.
Euro quickly recaptured the upper hand in the final hour of trading as the closing price was close to the opening due to oil slump. Crude oil plunged to the lowest of 12 years amid China economy weakened and Middle East tension escalating.
Indicators of the manufacturing and services sector are both below 50 points, in addition with the PBOC continuing to devaluate the Yuan in 9 consecutive days has raised fears of the world second largest economy health. Meanwhile, with 10.5 million barrels / day, China is currently second placed in oil consumption. Concerns about cutback demand for oil of this country has sent oil prices falling to just above $ 32 / barrel.
The escalating tensions in Middle East between the two largest suppliers of OPEC has overshadowed all hope of Saudi Arabia and Iran “shaking hands” to cut production and lifting oil prices.
Low oil prices will impact US inflation target, which is the Fed’s more concerned issue between the two. Inflation was below the target of 2% in the past 3 years and being the major obstacle on the path of US monetary tightening. With current oil prices, Fed may find it hard to hike in the first quarter of 2016. This outlook of dollar in short-term supported the Euro in the last trading session.
The US dollar index, which measure the greenback strength against a basket of six other major currencies had risen 0.5% to its highest at 99.27 of the day, before closing at 98.45 points.
Analyses of Group If24h