On Friday, the NFP reports showed job growth just below expectations, though still strong enough to not disrupt the overarching trend.
Jobs growth in the United States slowed to +156K in December, slightly below expectations of +175K, as the economy showed further signs of modest improvement. The November reading was revised higher to +204K from +178K; overall, leaving the two-month net revision was +19K after a small revision lower to October.
Th strong profit taking on the first week of the new year, caused for the dollar to seem “weaker” against the other major currencies. It is important to remember that the US economy has improved greatly in 2016 (mainly in the last half), and the outlook remains very bullish.
Traders have the tendency to go against the general idea of trading which states “Cut you losses and let your profits run” – when seeing a strong movement and big gains, the psychology of the trader takes over and fear of loosing what you have already made, makes you cut your profits. By doing so, you ensure some part of your profits (“profit taking”), and the contract goes the opposite direction. This is what happened with the USD last week.
Strong economic data combined with the expectations for highly accommodative and expansionary fiscal policy can lead the Fed to raise rates sooner and faster to head off expected inflation.
The expectations for further economic growth and rate hikes, indicate that the USD has still, a long way to go (bullish).
EUR/USD is currently trading at 1.0532, slightly above the previous resistance (now support) at 1.05. Following last week’s profit taking, we expect for the USD to regain its bullish momentum and for the pair to drop below the 1.05 once again and retest the 1.03 level to break even lower.
USD/JPY is at 117.34 once again, after dropping to 115 last Thursday.
Gold prices started the new year on a possitive note, up 4.5% from December’s last week where the commodity found strong support at $1,126.
Brent crude oil is steady at $57.88.
In the week ahead, investors will be looking ahead to U.S. economic reports, particularly Friday’s retail sales figures for December.
Investors will also be watching an appearance by Fed Chair Janet Yellen on Thursday and speeches by a handful of other Fed officials during the week.