USD Struggles On Disappointing NFPs, EUR To Consolidate On Elections

By David Song, Currency Analyst

Talking Points
  • U.S. Dollar: Non-Farm Payrolls Disappoint, Jobless Rate Contracts
  • Euro: Consolidates Within Bearish Formation - Greek, French Election In Focus
  • British Pound: To Consolidate Ahead Of BoE Interest Rate Decision

U.S. Dollar: Non-Farm PayrollsDisappoint, Jobless Rate Contracts

The greenback came under pressure following the dismalNon-Farm Payrolls report , with the Dow Jones-FXCM U.S. Dollar Index(Ticker: USDOLLAR ) paring the overnight advance to 9,922, and thereserve currency may consolidate throughout the North Americantrade as market participants increase bets for more monetaryeasing. Indeed, the world’s largest economy added 115K jobsin April following the 154K expansion during the previous month,while the jobless rate unexpectedly slipped to 8.1% from 8.2% asdiscouraged workers continued to leave the labor force.

Moreover, wage growth slowed during the same period, with the annualized reading falling back to 1.8% from a revised 2.0%, and the slew of weaker-than-expected data may encourage the Fed to carry its easing cycle into the second-half of the year as policy makers look for a stronger recovery. However, as the central bank expects economic activity to gradually gather pace throughout 2012, Fed officials may continue to soften their dovish tone for monetary policy, and the FOMC may start to discuss a tentative exit strategy as growth and inflation picks up. As the USDOLLAR carves out a higher low in May, the short-term rebound in the index should continue to gather pace, and the greenback may continue to retrace the decline from the previous of month as central bank officials become increasingly upbeat towards the economy.

Euro: Consolidates WithinBearish Formation - Greek, French Election In Focus

The Euro snapped back following NFPs, with the EURUSDbouncing back from an overnight low of 1.3120, but we will stickwith our bearish forecast for the single currency as the economicdocket continues to cast a weakened outlook for the region. As theelection in France and Greece come into focus, a shift inleadership may further drag on investor confidence, and we may seethe single currency face additional headwinds in the week ahead asthe threat for contagion continues to dampen the outlook for theregion. As European policy makers struggle to address the riskssurrounding the region, fears of a prolonged recession are likelyto intensify in May, and we should see the bearish formation in theEURUSD continue to take shape as it carves out a series of lowerhighs. As price action approaches the apex of the descendingtriangle, we are looking for a major break to the downside, but theeuro-dollar may continue to consolidate in the week ahead as itcontinues to find support around 1.3000.

British Pound: To Consolidate AheadOf BoE Interest Rate Decision

The GBPUSD pared the decline to 1.6154 on the backof dollar weakness, but we are still looking for a short-termcorrection in the exchange rate as the relative strength indexcontinues to come off of overbought territory. As the Bank ofEngland is scheduled to meet next week, we should see the BritishPound consolidate ahead of the rate decision, but the central bankmay refrain from releasing a policy statement as the MonetaryPolicy Committee is widely expected to maintain its current policystance in May. However, as BoE officials take note of thestickiness in underlying inflation, we may see a growing riftwithin the MPC, and the central bank may ultimately move away fromits easing cycle in an effort to restore the credibility on itsinflation mandate. Although our near-term bias remains to theupside, we want to see the GBPUSD find support around 1.6000 to seea move higher, and the sterling may mark fresh yearly highs laterthis month should the BoE Minutes due out on May 23 dampenspeculation for more quantitative easing.

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong

To be added to David's e-mail distribution list, send an e-mail with subject line "Distribution List" to dsong@dailyfx.com.

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Original Article: http://www.dailyfx.com/forex/fundamental/daily_briefing/session_briefing/us_open/2012/05/04/USD_Struggles_On_Disappointing_NFPs_EUR_To_Consolidate_On_Elections.html

DailyFX is the forex news and research arm of FXCM (NYSE: FXCM), which provides currency trading and brokerage services and is an advertiser on TheStreet websites. Any opinions, news, research, analyses, prices, or other information is provided as general market commentary, and does not constitute investment advice. Dailyfx will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Currency trading involves significant risk of loss. Individual authors may hold positions in the currencies discussed in the article.

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