The Significance Of November US NFP On Euro And Yen

The number of high impact news scheduled to be out this week is fewer than the previous one. However, leftover biases and anticipation for the coming week's schedules has came in the market to play along.

The number of highly moving news shceduled to be out this week is fewer than the previous one. However, leftover biases and anticipation for the coming week's schedules has came in the market to play along.

Steady US Economy Improvement

US Non Farm Payroll on Friday (5/12) came out far better than expected at 321,000 versus 231,000. Unemployment rate stayed at 5.8%, but average hourly earnings moved up from 0.1% in October to 0.4%. The figures depicted a steadily improving US economy, gives traction to speculation of Fed rate hike in mid-2015. Major pairs responded accordingly with the US Dollar strengthened across the charts. However, the greenback seemed to have started to withdraw, with Pounds and Yen lead the pack now.

Two common concern in regard of US the Fed rate hike are inflation and job market improvement. While inflation is expected to slow temporarily following lower energy prices,
US job market has improved consistently in the past few months. Unemployment has dropped back to the way it was before 2008/2009 crisis, and average hourly earnings has risen in the fastest pace since June 2013.

US Unemployment Rate January 2008-November 2014

The NFP report means that US job market is no longer worrying, although the Fed FOMC might choose to wait for a 'considerable time' before going forward with the rate hike plan. Still, that ill-defined period is now getting clearer; what with even 2014 FOMC chairman William C Dudley consider that market expectations of Fed rate hike at around mid-2015 as reasonable.

The NFP euforia has brought the US Dollar to overbought at major pairs by Monday (8/12) ends, and so it started to retrace back in several pairs as of this morning.

ECB's QE Indecision

European Central Bank chief in Thursday (4/11) once again pledged his commitment to do whatever needed to pursue higher inflation and stop slowdown. However, the expected additional stimulus announcement is absent.

It needs to be noted that at 0.3% in November, Eurozone inflation is at its lowest since 2009, and it is expected to go even more lower as oil prices skydive.

Eurozone Inflation Rate January 2009-November 2014

Perceived dovishness from the statement has led the Euro lower last week, but market opinion is that the ECB has to actually do something for inflation figures and growth to pick up again. ECB prolonged indicisiveness could lead to diminished market confidence, which will make it worse for the bonds market, and eventually bring unfavorable environment for an actual QE. It need not to be spelled that the Eurozone now is on the brink of deflation, and for it not to plunge further, something have to be done soon.

Consequently, the circumstances sets the stage for further losses on EURUSD in the coming days. As seen from technical indicators on the H1 chart screenshot below, EURUSD has started losing steam.

EURUSD on H1 timeframe with EMA-20 (red), EMA-60 (blue), EMA-200 (magenta), MACD, and Fibonacci Retracement

Reversals on the corrected levels seem imminent, doesn't it!?

Japan Snap Election

Meanwhile, on the other region that already suffering recession, politicians are fighting for supports. PM Abe has dissolved Diet lower house in preparation for election that will be held next week. The dissolution of the diet is generally seen as more political than necessary, and has actually resulted in suspended readings on some economically-essential law reform. Nevertheless, general estimates believe that PM Abe will win as opposition failed to advance their cause and no other politician is seen as having enough idea on what to do to lift Japan from the slumps.

PM Shinzo Abe in a campaign in Tokyo, Japan

The snap election also means another delay for Japan economic reform, while contraction lacerates its economy. Japan third quarter GDP was reported at -1.9%, higher than the -7.3% in the second quarter, but worse than preliminary estimates that placed growth annualized at -1.6%. 

As such, the Japanese Yen prospects of recovery has diminished significantly. The USDJPY is now flying so far above EMA-200 even in weekly and monthly timeframe, it no longer make sense in technical view.

USDJPY on H1 timeframe with EMA-20 (red), EMA-60 (blue), EMA-200 (magenta), MACD, and Fibonacci Retracement

The USDJPY is currently stuck around 117, its highest level since 2007; but if weaknesses in the Japan economy goes on, then we could expect the Japanese Yen to touch 200 in the following months.

In the face of steadying job market in the USA, slacks in the Eurozone and Japan recession make the complete the foundation for even lower EURUSD and higher USDJPY. Fundamentally, there seems to be no longer surprises as all cards have been revealed. As long as the situation unchanged, we may see the same sentiment recur in the few months.