Dollar Struggles After Payrolls - Outlook

Patrick Murphy
June 7, 2013 — 854 views  

The USD remained on the defensive despite better than expected payroll data out this morning.  The euro traded to a 3 ½ month high (1.3305), GBP a 4 month high (1.5683) while the JPY hit a low of 94.91 in overnight trading.  The only bright spot for the USD has been the precipitous drop of the AUD which hit a 20 month low of .9426.

After mostly weak economic data out of the U.S., today’s May employment numbers showed an increase of 175,000 new jobs which was better than the forecast of 163K.  This came on the heels of surprisingly upbeat tone from ECB President Mario Draghi on the state of the European economy after the ECB kept rates unchanged yesterday.  In addition, both the UK and Australia kept interest unchanged as well.  The yen has strengthened by over 7% over the past week.   The nearly 20% decline in Japan’s Nikkei in the last few weeks has forced many investors to unwind long Nikkei/short JPY trades, essentially triggering a flood of yen buying by market participants. While the longer-term outlook for the yen remains negative, its near-term outlook will continue to be dominated by heightened volatility

Outlook:  In anticipation of the fed tapering its asset purchases, the market may have gotten ahead of itself and overbought the dollar through most of May.  As recent economic data reduced the chance of this happening, market participants with long dollar positions headed for the exits causing this week’s sell-off.  As the swing in the pendulum slows, we can expect to settle into a range until the next round of important economic data.  Expect the euro to trade in a 1.3150 – 1.3350, GBP 1.53 – 1.5550, JPY 97 – 99, and AUD .94 - .97. over the next week or two.

Patrick Murphy

Commonwealth Foreign Exchange

Patrick Murphy has over 26 years of banking, capital markets and foreign exchange experience. He has worked with some of the largest companies in North America, assisting them with day to day FX trade execution as well as managing long term risks