NFP: USD to perform better against currencies with dovish central banks – TDS

The US reported a second consecutive blockbuster Nonfarm Payrolls report. The USD is moderately bid following the news. This is consistent with a firming in relative data surprise correlations with broad USD variation. Economists at TD Securities expect this to stick in the weeks ahead as the Fed has emphasized data as key to informing taper near-term. 

USD bears may need to be cautious from a strategic perspective 

“Payrolls were +943K in July, above the +870K consensus. The unemployment rate fell to 5.4% from 5.9%; the household survey employment measure rose 1.043mn following up just 18k in June and the participation rate rose 0.1pt. Average hourly earnings were +0.4% MoM), following +0.4% in June (revised from 0.3%). The YoY change for hourly earnings rose to 4.0% from 3.7% (revised from 3.6%).”

“We think it is prudent to expect that data surprise and broad USD correlations persist into the early fall. Insofar as this remains the case, we would expect the USD to perform against currencies where more dovish central banks exist.”

“The EUR is a key focus with 1.1780 followed by 1.1750 as primary supports. Below this, 1.1704 is the last major pivot ahead of 1.16 support.”

“USD/JPY also looks vulnerable to a squeeze higher following the breach of trendline resistance established from the July highs.”