Weak U.S. Jobs Data Prompts Flight into Greenback

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Demand for risky assets fell sharply and the U.S. Dollar strengthened against most major currencies after theU.S.government reported weak jobs data for the third straight month. Today’s U.S. Non-Farm Payrolls report showed that employers added only 80,000 jobs in June. This figure dragged the 2012 average monthly jobs pace down to 150,000, well off the pace of the first six months in 2011 of 161,000. The unemployment rate was unchanged at 8.2 percent. 

The U.S. Dollar Index spiked higher on the news as traders began to factor in the possibility the U.S. Federal Reserve would have to implement another round of quantitative easing. This amounts to providing fresh liquidity in the market in an attempt to jump start the economy once again only three years after the last recession ended. 

Usually the speculation that a central bank was planning to inject liquidity is bearish for the home currency, but in this case, investors were driven to the relative safety of the U.S. Dollar, putting pressure on higher risk asset classes such as equities and commodities. 

Foreign currencies were hit particularly hard today with the EUR/USD plunging to a new low for the week. The down move also took out last month’s low at 1.2287, setting up the possibility of a continued decline into the June 2010 bottom at 1.1876. Today, sellers essentially “piled on” the Euro after yesterday’s announcement by the European Central Bank decided to lower interest rates across the board. 

The GBP/USD is also under pressure but the break isn’t a strong as the Euro’s. On Thursday’s the Bank of England jump-started the down move by injecting additional liquidity into the economy. The main trend is down in this currency pair, however, at this time it is still only testing a short-term retracement zone.  The pace of the current break suggests that the June low at 1.5268 is well within reach. 

August Comex gold and August WTI crude oil futures are also taking a beating today as commodities priced in dollars fell sharply because of the rise in the Greenback. The break in crude oil was a sign that traders were ignoring the possibility of a conflict with Iran over European oil sanctions which began on July 1, instead choosing to focus on weaker demand if theU.S.economy sours. 

The weaker U.S.jobs data suggests the economy is stalling. This could prompt action by the Fed to stimulate the economy. The news that the world’s largest economy could be sputtering is encouraging investors to seek the sidelines with the best alternative being a position in the U.S. Dollar.

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About: FX Empire Analyst - James Hyerczyk

James A. Hyerczyk has worked as a fundamental and technical financial market analyst since 1982. His technical work features the pattern, price and time analysis techniques of W.D. Gann.

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