Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your experience. Save up to 40% More details

NFP Marked Near-Term Trend Change For Economy; Where Next For U.S. Dollar?

By Marc ChandlerForexMar 08, 2021 01:23AM ET
NFP Marked Near-Term Trend Change For Economy; Where Next For U.S. Dollar?
By Marc Chandler   |  Mar 08, 2021 01:23AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items

The US dollar's recovery continued last week, with new highs for the year being recorded against the euro, yen, and Mexican peso. The key driving force is interest rates and ideas that the US monetary spigot will be turned down before Fed officials acknowledge. The rise in interest rates and inflation expectations are not just the result of the massive US monetary and fiscal stimulus. OPEC+ have cut output by around 7%, and last week, agreed not to boost production next month, surprising market observers, including ourselves, for example.

The uncertain regulatory environment, specifically, the exemption for Treasury holdings and excess reserves from calculating the liquidity ratio that expires next month, may also be playing a role. Next week, the US Treasury sells $120 bln of coupons ($58 bln 3-year and $38 bln 10-year notes, and $24 bln in 30-year bonds). There is no risk that the US auction fails, but it is a question of how sloppy it will be received. The last coupon sale was the $62 bln seven-year auction on  February 25, which marked an inflection point. The bids were still two times greater than the offering amount. Perhaps, a mitigating factor is that the general collateral repo rate is spending more time below zero, which means that one is paid (small) to repo the Treasuries for cash.

We retain a bearish dollar view for the medium and longer-terms. Indeed, the very forces that help the dollar now, the large monetary and fiscal stimulus fueled divergence, we think, undermines the greenback in the longer-term through the "twin deficits."  Meanwhile, the US employment data marked a change in the near-term trend in early January and again in early February. We would not rule out a three-peat as the dollar's recent surge leaves it stretched. At the very least, some consolidation and paring recent gains seem likely.

Dollar Index:  The Dollar Index rose about 1.15% last week. It was the best performance since before the US election and vaccine was announced. It pushed above 92.00 before the better than expected jobs report and after stalled near 92.20. The momentum indicators allow more gains, but the dollar's rally, that many are just discovering, actually began in early January from around 89.20. That is to say, the dollar upside correction seems mature. In fact, the (61.8%) retracement of its losses since the election is found around 92.35. We had suggested something a bit higher as possible and anticipate a test on the 93.75-93.00, which houses the 200-day moving average.

Euro:  With the pre-weekend sell-off, the euro completed the (61.8%) retracement of the rally since the election found near $1.1880. We had projected that the topping pattern we saw would allow the euro to fall to $1.1750, which at the time was below the 200-day moving average (now ~$1.1820). The momentum indicators are headed lower, but the trend lower has been in place since early January. Some consolidation looks necessary to preserve the orderly decline. It spent most of the pre-weekend session below the lower Bollinger® Band (~$1.1970). Three-month implied eased a little last week, which is what one might expect if the euro's decline is seen as corrective in nature.

Japanese Yen The dollar rose by over 1.5% against the yen last week. It was the third weekly advance for a little more than 3%. For the past eight sessions, the dollar has risen above the previous session's high. It briefly traded above JPY108.60 for the first time since the middle of last year. The momentum indicators are stretched, and the greenback is finished above the upper Bollinger Band (~JPY108). The dollar's ascent has been so strong that initial chart support is not seen until JPY107.60.

British Pound:  Sterling fell for the second consecutive week for the first time since last September. Despite the relatively successful vaccine rollout and plans to fully re-open by June 21, sterling has shine has dimmed given the jump in US rates. Sterling peaked on February 24 on a spike to almost $1.4240. Before the weekend, it slipped below $1.38 for the first time since Valentine's. The five-day moving average is below the 20-day moving average, not seen since the middle of December. The momentum indicators are falling hard. The lower Bollinger Band will begin the new week near $1.3720, which is slightly above the (38.2%) retracement objective of the rally since the US election. A break of that area runs into a band of congestion that extends to $1.3600. The (50%) retracement objective is near $1.3550. The $1.3900-$1.3925 may cap gains.

Canadian Dollar The Canadian dollar was one of two major currencies to appreciate against the US dollar last week (the other being the Norwegian krone). It is the fourth weekly loss for the greenback in the last five weeks. Ahead of the weekend, the US dollar tested the week's high, just below CAD1.2740. As US stocks turned up and bonds stabilized ahead of the weekend, the US dollar reversed lower and made new lows late in the session,  leaving behind a bearish shooting star candlestick pattern. Initial support for the greenback may be near CAD1.26, but we suspect there is scope for returning toward the multiyear low set in late February near CAD1.2470. 

Australian Dollar After selling off into the end of February, the Australian dollar tried recovering last week and stalled near $0.7850, a retracement of the drop and proceeded to pot another leg down to about $0.7620, through the lower Bollinger Band (~$0.7635) ahead of the weekend. Although it dipped below $0.7600 in late January, it has not below it this year. It was the second consecutive weekly loss, the first since last June. The momentum indicators are falling, and the five-day moving average is below the 20-day. The close was nothing impressive, near the middle of the range, but we suspect a firmer tone to start the new week. Initial resistance is likely $0.7770 and then $0.7820.

Mexican Peso: The Mexican peso was among the weakest of the emerging market currencies, falling about 2.3% against the dollar last week. That offsets about half the interest rate premium earned on a 10-year Mexico peso bond. The dollar pushed above the 200-day moving average (~MXN21.16) ahead of the weekend, for the first time since last October, and did not look back. It peaked around MXN21.42. We had suggested a target of MXN21.50. The momentum indicators are getting stretched, and the greenback finished above the upper Bollinger Band (~MXN21.2650). While MXN21.00 may offer initial support, stronger interest may be seen near MXN20.80. On a little longer-term outlook, our next target is in the MXN22.00 area.

Chinese Yuan:  The yuan strengthened steadily from the end of last May through the first couple of sessions this year and since has been in an extremely narrow range. Indeed, as we have pointed out, the dollar has been in the range set in the first two sessions ever since, with a couple of minor exceptions. That range was roughly CNY6.43 to CNY6.5150. The dollar approached CNY6.50 before the weekend. During the National People's Congress, which runs most of next week, officials do not want a headline about yuan weakness. In the bigger picture, the yuan's stability means that it has appreciated against its CFETS basket. It reached the highest level since June 2018. The stability of both the yuan and Chinese government bonds gives them a quantitative characteristic that is often desired in portfolio construction. Among the favorite plays among levered fixed-income accounts continue to be short yen long Chinese bonds.

NFP Marked Near-Term Trend Change For Economy; Where Next For U.S. Dollar?

Related Articles

Kenny Fisher
Pound Dips After Soft Retail Sales By Kenny Fisher - Jan 21, 2022

The British pound has edged lower in Friday trading. In the European session, GBP/USD is trading at 1.3558, down 0.28% on the day. UK Retail Sales slide UK retail sales had a...

NFP Marked Near-Term Trend Change For Economy; Where Next For U.S. Dollar?

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email