EUR/USD: Dollar weakens on slow wage growth

Macroeconomic overview:

• U.S. nonfarm payrolls rose by 228k jobs last month amid broad gains in hiring as the distortions from the recent hurricanes faded, Labor Department data showed on Friday. The government revised data for October to show the economy adding 244k jobs instead of the previously reported 261k positions.

• November's report was the first clean reading since the storms, which also impacted September's employment data.

• Average hourly earnings rose five cents or 0.2% in November after dipping 0.1% the prior month. That lifted the annual increase in wages to 2.5% from 2.3% in October. Workers also put in more hours last month.

• The unemployment rate was unchanged at a 17-year low of 4.1% amid a rise in the labor force. The market had forecast payrolls rising by 200k jobs last month.

• The fairly upbeat report underscored the economy's strength and could fuel criticism of efforts by Trump and his fellow Republicans in the U.S. Congress to slash the corporate income tax rate to 20% from 35%. Republicans argue that the proposed tax cut package will boost the economy and allow companies to hire more workers. But with the labor market near full employment and companies reporting difficulties finding qualified workers, the economy does not require the kind of fiscal stimulus. Job openings are near a record high.

• The average workweek rose to 34.5 hours in November, the longest in five months, from 34.4 hours in October. Aggregate weekly hours worked surged 0.5% last month after October's 0.3% gain.

• While November's employment report had no impact on expectations the Federal Reserve will raise interest rates at its December 12-13 policy meeting, it could help shape the debate on monetary policy next year.

• The U.S. central bank has increased borrowing costs twice this year and has forecast three rate hikes in 2018.

• Employment growth has averaged 174k jobs per month this year, down from the average monthly gain of 187k in 2016. A slowdown in job growth is normal when the labor market nears full employment. The unemployment rate has declined by seven-tenths of a percentage point this year. A broader measure of unemployment, which includes people who want to work but have given up searching and those working part time because they cannot find full-time employment, ticked up to 8.0% last month from a near 11-year low of 7.9% in October.

• Shrinking labor market slack is likely to unleash a faster pace of wage growth next year. Higher wages and tax cuts will fuel inflation. Friday's disappointing U.S. wages data weakened the USD as investors think it could weigh on the pace of interest rate hikes from the Federal Reserve next year.

Technical analysis and trading signals:

• Bulls are in control after a dragonfly doji formed on Friday's candlestick line, signaling a rejection of downside. The market failed to register a daily close below 1.1758 on Friday, 50% fibo of the 1.1555 to 1.1960 rise.

• We remain long for eventual gains to 1.2155 and think that current levels are still attractive to open long positions.

 

NZD/USD: Kiwi rises on new RBNZ governor appointment

Macroeconomic overview:

• The New Zealand government on Monday named pension fund chief Adrian Orr as the nation's new central bank governor, sharply lifting the local dollar as markets bet a radical shake-up of monetary policy will be avoided when changes come into force next year. Orr will take up the role at the Reserve Bank of New Zealand on March 27, Finance Minister Grant Robertson said in an emailed statement.

• Orr will play a crucial role in a key period of the central bank's history, as the new Labour-led government plans to add maximising employment to the bank's objectives alongside its inflation target.

• Robertson said in the statement that the laws to change the bank's mandate would likely not be in force by March, but the policy target agreement between him and Orr would be "developed in a manner consistent with the direction of reform."

• Grant Spencer, who was appointed acting governor after Graeme Wheeler stepped down in September at the end of his five-year term, will continue in that role until Orr takes up the top job in 2018.

Technical analysis and trading signals:

• The NZD/USD failed to close below December 1 low of 0.6818. The pair broke above short-term moving averages, which may suggest that bearish trend is coming to an end. A key resistance level is 0.6944, high on November 28 and the next one is 0.6979 high on November 9. There is also 23.6% fibo of July-November fall at 0.6965. Breaking above this resistance area would be an important bullish signal.