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U.S. Dollar Surges after Unemployment Rate Drops

James Hyerczyk from ForexHound.com at 12/04/09


The U.S. Dollar surged against all major currencies after the government reported a surprise drop in the unemployment rate to 10 percent. Pre-report estimates were for the unemployment rate to remain unchanged at 10.2 percent. In addition, the total jobs lost came in at 11,000, well above estimates of 125,000. The October job loss was revised lower.

Traders bought the Dollar on the news as it represents the possibility that the Federal Reserve might begin raising interest rates sooner than previously estimated.

The inability to break through last week’s high at 1.5144 had been weighing on the EUR USD all week, but it took today’s better than expected employment report to finally push it over the side. This report may bring the Fed closer to hiking interest rates than the European Central Bank. This would close the interest rate gap between the U.S. and the Euro Zone which would be friendly toward the Dollar. The trend hasn’t changed to down but the Euro is now trading lower for the week.

The GBP USD reversed its earlier strength and is now trading lower. The short-term range is 1.6271 to 1.6720. This creates a retracement zone at 1.6495 to 1.6442. Today’s low was 1.6493. Traders are selling the British Pound because they believe the U.S. economy will recover faster than the U.K. economy.

A reversal in the carry-trade is helping to support the rally in the USD JPY. Earlier in the week the bottom was made in this currency pair when the Bank of Japan announced another stimulus plan but today’s better than expected U.S. economic news is the catalyst behind the strong surge to the upside. The possibility of the Fed hiking interest rates ahead of expectations is triggering a reversal in the carry trade as investors are buying Dollars to pay back loans and initiating new positions with borrowed Yen.

The short-term range is 92.32 to 84.83. This morning the retracement zone of this range at 88.57 to 89.46 was exceeded by the strong upside momentum. The new upside target is 90.88.

The stronger than expected Canadian Employment Report offset the better than expected U.S. Non-Farms Payroll Report causing the USD CAD to trade range bound. At the mid-session, the Canadian Dollar is a little stronger but the market is stuck in a range between retracement levels at 1.0459 to 1.0537.

Weakness in the equity markets and a lack of demand for higher yielding currencies is putting pressure on the AUD USD. The short-term range is .8946 to .9321 with a retracement zone at .9133 to .9089.

After finding resistance at .7272 the past three days, the NZD USD finally weakened this morning. The short-term range is .7022 to .7299, setting up a retracement zone at .7160 to .7128. This morning’s sell-off tested the top end of this range. There could be a technical bounce from this level, but if it fails look for a further decline to .7128. Gann angle support comes in at .7122.

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