US Non-Farm Payrolls Record Blow-out Number

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(As written on BTInvest, 08 December 2014. Click here to read from BTInvest.)

Employers in the U.S. added 321,000 jobs in November, the most since January 2012, driving wage gains and highlighting increased corporate confidence the economy will endure a weakening in global markets.

According to figures from the US Labour Department, the advance in payrolls exceeded the most optimistic projection in a Bloomberg survey of economists and followed a 243,000 gain in October that was stronger than previously reported. The jobless rate held at a six-year low of 5.8 percent. Average hourly earnings rose 0.4 percent, the biggest gain since June of last year.

The USD/JPY shot up over 100 pips immediately after the blowout number was reported. On Monday morning, USD/JPY rose to 121.84, touching its highest level since July 2007. The MSCI Asia Pacific Index added 0.1 percent by 9:25 a.m. in Tokyo, as Japan’s Topix Index rose 0.4 percent to extend its highest level since December 2007.

Elsewhere in Europe, European Central Bank (ECB) President Mario Draghi has promised that the ECB will act should current stimulus prove insufficient when it is reassessed early next year. The central bank is said to be preparing a QE package to be discussed at the next monetary policy meeting on 22nd January 2015.

On 11th December, banks are expected to borrow about 148 billion euros in the targeted long term refinancing operation (TLTRO), according to the median estimate in the survey of 24 analysts. Predictions ranged from 90 billion euros to as much as 250 billion euros. An initial round of the program in September raised 82.6 billion euros, less than economists forecast.

The TLTRO, designed to spur lending to the real economy, will mature in September 2018 and will have a fixed interest rate, which is the refinancing rate at the time of take-up plus 10 basis point spread. After December, additional amounts can be borrowed in further target LTROs during the period from March 2015 to June 2016, depending on the evolution of the banks’ eligible lending activities in excess of bank-specific benchmarks.

A low take-up rate in December would make the prospect of actual sovereign bond QE in early 2015 more likely. Draghi’s plan to boost the ECB’s balance sheet toward early-2012 levels, when it was about 3 trillion euros compared with 2 trillion euros now, is aimed at ensuring the euro area is flooded with cash, keeping real interest rates low and spurring credit creation that can revive the economy.

As well as the long-term loans, it’s also fueled by purchases of covered bonds and asset-backed securities.

Since those private-sector asset purchases started in late October, the ECB’s balance sheet has barely budged as liquidity injections are countered by repayments on the older loans. In fact, between now and February 2015, banks must repay 270 billion euros of outstanding loans issued at the end of 2011 to alleviate the effects of the euro area’s sovereign debt crisis.

Covered-bond purchases totaled 17.8 billion euros as of 28th November, and buying of asset-backed securities (ABS), which started late last month, reached 368 million euros.

The problem in all of the ECB’s moves thus far is that the 18-nation economy has also shown little sign of improvement. Inflation matched a five-year low at 0.3 percent in November and the ECB last week cut its forecasts for consumer prices and gross domestic product through 2016.

Top News This Week

UK: Manufacturing Production m/m. Tuesday, 9th December, 5.30pm.              
I expect figures to come in at 0.2% (previous figure was 0.4%).

China: CPI y/y. Wednesday, 10th December, 9.30am.              
I expect figures to come in at 1.5% (previous figure was 1.6%).

Australia: Employment Change. Thursday, 11th December, 8.30am.              
I expect figures to come in below 16K (previous figure was 24.1K).

Trade Call

Short EUR/USD at 1.2276

On the H1 chart, there was a “short squeeze” last week when prices retraced upwards to hit 1.2456. The main reason was due to Draghi’s refusal to commit to QE this year. Some traders saw that as a reason to take profit on the short EUR/USD, causing the EUR/USD to have a push upwards.

However, the EUR/USD short trades have returned almost immediately, especially after the blowout number from Friday’s NFP. An aggressive entry is taken at 1.2276 once prices hit the support level. A stop loss of 35 pips is placed above the previous high and we will have two targets on this trade, exiting the first position at 1.2241 and the second one at 1.2206.

Entry Price = 1.2276
Stop Loss = 1.2311
1st Profit = 1.2241
2nd Profit = 1.2206


Mario Singh is the Director of Training and Education at FXPRIMUS, Asia’s fastest growing brokerage firm.

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