Friday’s Non-Farm Payroll release was soft but still supporting the U.S. dollar rally, at least in the short-term. The NFP report showed a mixed picture with only 164K jobs added in April but it was the jobless rate that fell to 3.9 percent (the lowest level since 2000) which provided another boost to the dollar. However, the latest job report doesn’t meaningfully change the Federal Reserve tightening path.
The dollar initially strengthened against its major counterparts but finally ended Friday’s trading day more or less unchanged against the euro and British pound.
The top event risk in the days ahead will be the Bank of England’s rate decision on Thursday. This is a Super Thursday which means that the BoE announces its rate decision together with the release of the Quarterly Inflation report and remarks of BoE Governor Carney.
A rate hike in May is off the table but the focus now turns to a potential rate increase in August. This means that we could possibly see a relief rally in the pound, provided that BoE policy makers provide a hawkish hold on Thursday.
GBP/USD
We saw the cable touching the support area around 1.35 from where a modest recovery started. We will now wait for an upside break above 1.3585 in order to anticipate accelerated bullish momentum. Sterling bears should however focus on breaks below 1.3520 and 1.3450/40.
EUR/USD
We got exactly what we were looking for in our analysis from Friday: A technical breakout, that provided a profitable move for euro bears. The euro broke below 1.1960 and fell toward a low of 1.1910. On the topside, the 1.20-base remains an interesting price barrier that should draw euro bulls’ attention in the event of an upside break. A significant break below the 1.19-support, however, could result in further losses towards 1.1850.
The economic calendar out of the Eurozone is very light this week, so the price action in the EUR/USD will hinge on the appetite for USD.
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