US economy adds 292k jobs but wages stagnate, will Dollar remain weak?

Quite a surprise on Friday when the Non-Farm Payrolls report was released and the global currency markets reacted in a volatile manner to the way the labor market figures printed. Analysts were expecting a mild reading of around 200k jobs added in the US workforce but the actual reading smashed expectations when it came at 292k jobs and the upwards revision of last month’s report was also a bullish sign that should have excited Dollar traders.

However the surprise was not just about the number of jobs added but also on the rate of wage growth and it seems that it was this key element that turned the Dollar lower in the end. The wage growth component missed its expected reading and printed significantly lower disappointing traders that expected at least a flat reading that would have allowed the Dollar to gain back its confidence and rally against its peers. Eventually the mixed reading dragged the US currency lower as a lower wage growth seemed to bother traders more than a month of labor market expansion.

The week ahead will be interesting as it will be key to see how the US Dollar will react on the aftermath of the NFP report, the report printed in a mixed manner as we detailed above and it is not clear how it will affect traders’ expectations. There is also a limited number of key market events and reports this week and especially today and that means that the major instruments we monitor daily will be vulnerable to news from China and also policymakers’ comments. We will have the chance to hear a lot of that as a number of Fed officials will be speaking publicly this week.

Price action on Friday was quite unstable as the initial bias towards a stronger Dollar was reversed when the mixed NFP report hit the wires. The Euro was on a course lower during the early morning session trading as low as 1.0800 but the disappointment from the US labor market numbers drove the Single currency higher to print a 1.0970 high when the Asian markets opened last night. The bias here is mixed, the Euro remains weak while the Eurozone is still in trouble but with the Dollar having lost some of its confidence in recent weeks the outlook is not clear. The key resistance to the upside lies at the 1.1000 figure while a clear reversal towards a stronger Dollar would mean a breakout lower than the 1.0800 support area.

The Cable remained weak regardless of the miss in the NFP wage growth component and failed to capitalize on the recent Dollar weakness. It has now been 10 trading days without a correction rally for the UK currency which is the longest bearish stretch since September which clearly highlights the lack of confidence behind the Pound. Furthermore the BoE is meeting this week and given the recent domestic data and the global markets’ volatility we expect them to remain bearish and avoid talking about higher interest rates which will in turn further weaken the Pound.