Big reversals back to risk aversion today on mixed to disappointing US employment report (smaller than expected drop in unemployment rate and decent drop in continuous claims, but payrolls data was much worse than expected and earnings/hours worked were weak and initial claims are still over 600k). ECB’s Trichet was fairly moderate/balanced in his outlook with little drumbeating on inflation expectations (but still insisting weak inflation was a temporary) and the outlook is stable for interest rates for at least the next couple of quarters.
All in all, risk appetite headed for the exits across the board – perhaps after end of the quarter window dressing earlier this week and as we head into 3-day weekend in the US. The JPY was the start performer as commodities and interest rates and equities all plummeted.
The greenback was also sharply stronger on the day and we now have very nice looking bullish reversals for both the greenback and the JPY. Still, we’ve been in ranges for ages, so we’d like to see follow through next week – with a close through 1.4000 in EURUSD the first obvious hurdle. JPY crosses could take a big hit, with AUDJPY and NZDJPY probably the highest beta pairs due to the commodity currencies’ correlations with risk appetite. Look for the key rising trendline in AUDUSD to see if it will break as well (currently coming in the 0.7900 area).
John Hardy, Consulting FX Strategist.
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