NFP Quick Analysis: Three reasons why necessary dollar correction may be followed by fresh rises

The writing was on the wall – markets' frontrunning of the Non-Farm Payrolls were bound to end and trigger a "buy the rumor, sell the fact"  America gained 225,000 positions in the first month of 2020 – better than 160,000 expected but below real expectations. Upbeat data, especially from ADP's blockbuster figure of 291,000 private-sector jobs gained last month.

That led to significant frontrunning, and now the pendulum swings to the other direction. Moreover, some dollar bulls are taking profits ahead of the weekend. 

The dollar began correcting the gains in the hour, leading to the release and is unable to recover.

Nevertheless, once the dust settles, the dollar has three reasons to rise: 

1) The data is still upbeat

An increase of 225,000 is nothing to frown upon – it beats the average in 2019 and is above the magic 200K level that Federal Reserve officials are eyeing. Moreover, annual wage growth topped 3% and also expectations with 3.1%.

And while the Unemployment Rate edged up to 3.6%, it is around historic lows – and comes on top of an encouraging increase in the participation rate. More Americans have joined the workforce. 

Overall, the US labor market is alive and kicking, contrary to a conclusion that may be reached from the dollar reaction.

2) Coronavirus fears

The headlines of record highs in US markets and hopes for vaccine to the virus may be deceiving – the outbreak is far from over. The economic damage continues spreading around the world, and investors may keep flocking to the safety of the US dollar.

While the greenback may bow to the yen – the ultimate safe-haven – it has room to rise against other currencies such as the euro, pound, and Aussie.

3) Cleanest shirt in the dirty pile

Even if the jobs report were genuinely terrible – the world's largest economy continues outperforming its peers in the developed world. Weak German and French data dampens hopes for a recovery in the eurozone. The UK faces tough negotiations on post-Brexit trade relations. Australia and New Zealand are suffering from collateral damage from China, while the Canadian dollar is falling alongside oil prices. 

While the Federal Reserve is frustrated with low inflation, it is still higher than in its peers – and this is reflected by higher interest rates. The gap in borrowing costs continues keeping the dollar bid,

Conclusion

Strong data, coronavirus virus, and an interest rate advantage will likely keep the dollar bid.