Non-Farm Payrolls miss their mark, US Dollar weakens across the board

What a surprise from Friday’s Non-Farm Payrolls report and what a shock for the US Dollar that was poised for more gains against its peers. The US jobs report was expected to show more progress in the domestic labor market and all the indications were there for a robust reading but it seems that the reality is much different.

The actual reading of the report caught investors off guard as the US economy not only added far less jobs than expected during the previous month but also the revision on the month before that was a significant one. So where does this development leave the US Dollar and Fed’s hiking schedule? As we mentioned on our report on Friday the Fed was expecting further progress on all fronts to move forward on hiking rates this month but with such a step back a move this month is off the table and a higher interest rate policy during 2015 is now under doubts.

The Dollar sold off against most of its counterparties as investors saw this as a very bearish development at least for the short term and we could see further weakness this week. The Euro rallied to 1.1300 after the numbers hit the wires and even though it retracted to 1.1200 before the day was out it seems clear that the 1.1100 lows are safe from breaching at this time.

The rally on the Euro could have been larger if it wasn’t for the bearish outlook of the Single European currency that although the Dollar weakened cannot attract enough interest from investors to take it higher at least at this point. Our assessment is that the outlook for the Euro pair is mixed at this point, the Dollar has taken a big hit but the situation in Europe is not good enough for the currency to take advantage of Dollar’s weakness, the 1.1300 resistance seems to cap any gains for now.

The Cable on the other hand was one of the pairs that didn’t really react to the Dollar retreat as the Pound didn’t attract enough support to really capitalize on the NFP miss. The 1.5200 resistance seems hard to overcome at this point even though the Pound hasn’t seen a correction rally in 2 weeks while being under pressure.

Today however the UK currency might have the opportunity to capitalize on Dollar bulls’ disappointment if the Services PMI levels show some progress. The recent numbers from the domestic economy haven’t been exciting for Pound traders to back the currency but the combined effect of a weakening Dollar and an oversold Pound might take the rate higher in the short term. The key resistance lies at the 1.5200 area and a successful break above it would expose 1.5300.