Weak non-farm payroll numbers slashed equity values and allowed institutions to test the safety of the USD as forex pairs separate into commodity, interest-rate, and growth/debt links with AUD and CAD tracking commodities, JPY and CHF tracking fixed-income markets, and GBP and EUR tracking austerity sentiment.
Equity futures found buyers ahead of the U.S. non-farm payroll numbers but collapsed as the loss of 130,000 jobs was absorbed, which was weaker than had been expected and once again housed revisions to previous reads that were also to the downside.
The USD comes under pressure on some, gains on others, and clings on to the inverse USD/Equity correlation as best it can.
Recent history dictates that the non-farm payroll report will set the tone and direction for the month, and as the USD gets pulled from pillar to post, all eyes will be on finding fair value ahead of the FOMC rate statement next week that many believe will now house detail of further quantitative easing measures.
More debt, more strain on the budget, more of the same all-in approach to printing fiat currency to cover last the interest charge on previous notes issued.
At the moment most of the daily forex and global trader market moves are housed in two or three 30-minute blasts of energy, as traders take stock of algorithm-based equity trade that melts up or down at will, and macro-economic releases that have been less than flattering for those looking for signs of global growth. If the USD is a flight to safety, the options must be extremely limited.
The path of least resistance for the USD looks to be down, and that should please those in charge of the Federal check-book in the near-term. Long term, however, a weaker dollar may not be that appealing for those holding paper mountains of USD reserves.
The rubber meets the road now that the non-farm payroll report is out and is weak, but traders will have no doubt that this is a long road-trip for those who are heavily positioned on the long side of the dollar.
Marco Hague is one of the founders and principals of The London Forex Broadsheet (commonly known as TheLFB), a global forex trader portal with headquarters in the U.S. Hague began his career with the Bank of England dealing with foreign exchange control, and he has been trading for the last three decades. He has been involved with institutional risk asset ratio analysis and the implementation and maintenance of institutional trade desks globally.