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DJIA 35037,50
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DAX 15761
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Investors and traders waited last Friday for US labour market data. Needed an answer to fears of a global and US economic slowdown. The trigger was a new rise in coronavirus infections.
EUR/USD
The data published at the end of the week was very strong. The number of new jobs in the US economy in July was the highest in over a year. At the same time the unemployment rate also fell in July from 5.9% to 5.4%. Both figures substantially exceeded analysts’ forecasts. In addition, the number of new jobs created last month was revised upwards.
This reinforced investors’ expectations of a normalisation of the US labour market. The yield on 10-year Treasuries rose to 1.3%, reaching the highest level since mid-July.
More important to forex traders, however, was the reaction of the Dollar Index. It rose sharply, almost to 93 points. And the EUR/USD dropped to 1.1760.
If we abstract from the rather strange policy of the Fed, which refuses to tighten monetary policy, we see the following. U.S. government bond yields should sooner or later reach 2% and then 3% per annum. In contrast, European bonds are unlikely to move upwards from zero yields.
These expectations, as well as a more rapid vaccination of the U.S. population, should push the EUR/USD pair lower. The first target of 1.15 is fairly quick. The second target is the 1.10 level.
Why do fewer traders believe in this scenario?
The stock, money and currency markets are in their second year of absurdity. All the obvious fundamental factors that worked before are now irrelevant. Traders have already bet several times during this time on a sharp rise in the US dollar. And each time they were disappointed in their expectations.
It is quite possible, that the situation will not change this time. And in a month we will see a new report on the labor market in the USA. It will be much worse than expected. Another reversal of the EUR/USD pair, already towards the level of 1.20.
03.30 China consumer price index for July
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