9 Nov 2015
The US labor market report has done the job - UBS
FXStreet (Córdoba) - The US October labor market report delivered very strong numbers and provided further support for the EUR/USD downtrend and according to the UBS team, this report paves the way for the Fed to move in December.
Key Quotes
“After weak numbers in the past few months, the nonfarm payrolls surprised with a strong 271,000 newly created jobs. Before the release, some economists argued that even 150,000 would have been enough for the Fed to move. But it was not just the payroll numbers, but the report overall. The unemployment rate dropped another tenth to 5.0%, and especially wages picked up strongly.”
“Overall, we believe this report paves the way for the Fed to move in December. Before the October labor market report, the bar was quite low for the report to be good enough for the Fed to be able to move. The surprisingly strong labor market report thereby raised the odds quite a bit and led to a substantial jump in the USD.”
“The market reaction after the release of the data supports this view. The US yield curve jumped by 10 basis points across the curve and EURUSD fell by more than 1.5%, also taking the USD trade-weighted index up by more than 1%.”
“But how far can the USD move, as monetary policy diverges, with the Fed moving rates higher, while the ECB is expanding its easing measures? In our view, there is a limit to how much USD strength the US Federal Reserve will tolerate, and this is probably around EURUSD at parity”.
“If we are close to those levels around the December Federal Reserve meeting, Janet Yellen will have to pick her words carefully to be able to deliver a rate hike, without sending EURUSD below parity. However, from current levels this still leaves more than 5% further potential upside for the USD across the board”.
Key Quotes
“After weak numbers in the past few months, the nonfarm payrolls surprised with a strong 271,000 newly created jobs. Before the release, some economists argued that even 150,000 would have been enough for the Fed to move. But it was not just the payroll numbers, but the report overall. The unemployment rate dropped another tenth to 5.0%, and especially wages picked up strongly.”
“Overall, we believe this report paves the way for the Fed to move in December. Before the October labor market report, the bar was quite low for the report to be good enough for the Fed to be able to move. The surprisingly strong labor market report thereby raised the odds quite a bit and led to a substantial jump in the USD.”
“The market reaction after the release of the data supports this view. The US yield curve jumped by 10 basis points across the curve and EURUSD fell by more than 1.5%, also taking the USD trade-weighted index up by more than 1%.”
“But how far can the USD move, as monetary policy diverges, with the Fed moving rates higher, while the ECB is expanding its easing measures? In our view, there is a limit to how much USD strength the US Federal Reserve will tolerate, and this is probably around EURUSD at parity”.
“If we are close to those levels around the December Federal Reserve meeting, Janet Yellen will have to pick her words carefully to be able to deliver a rate hike, without sending EURUSD below parity. However, from current levels this still leaves more than 5% further potential upside for the USD across the board”.