Risky assets and currencies are rallying this morning on the back of some positive data in the US that is extending the relief rally that stared earlier this week.
This news has also given traders the impetus to buy the struggling euro after being beaten down so badly over the past few weeks. The general feeling in global markets does remain fragile, however, and volatility remains high as price action is being influenced more by headlines rather than fundamentals.
Non-Farm Payrolls Show Some Life
The NFP result for the US this morning gave markets something to cheer about for the first time in a while as the reading came in well above expectations, bucking the recent trend of negative news globally.
Expectations for the NFP have been trending down lately as investors have tempered their expectations on a recovery for the US, with even Fed Chairman Ben Bernanke stating that he does not have a lot of confidence that the recovery will be a swift one. The unemployment rate does remain elevated at 9.1%, so there will clearly need to be a lot more jobs gained before we can say that the recovery is well underway.
As a result of all of this, the high-flying US dollar has had its wings clipped today, as risk appetite returns in a big way following all of the recent market carnage we have seen. The EUR, GBP and commodity currencies are the big winners so far today after sustaining big losses over the past several weeks.
The European debt crisis seems to have disappeared for the time being as investors place their focus on the US. In fact, several UK and European banks were downgraded by Moody’s overnight but the market reaction was muted as traders were more interested in the NFP, with both the EUR and GBP rallying hard this morning.
With the US data out of the way, the focus may shift back to Europe as it has been, but for the time being it appears that no news, or rather the lack of catastrophic news, is good news. Regardless of what happens next, investors are very nervous these days and are not holding onto positions for long periods of time, so volatility is high and should remain elevated for some time now. This provides both risk and opportunity for those hedging their FX exposures, so contact your dealer for assistance.
Loonie Soars
The Canadian dollar has screamed higher today, gaining initially on the domestic data and following once again on the NFP release. The USDCAD pair reached a high near 1.0650 earlier this week and has since fallen nearly four cents, with today’s moves accounting for about 1.5 cents.
After breaching the parity level against the US just a few weeks ago, we are looking at that level to provide some support should we continue to trade down and see more Canadian dollar strength. Today’s data underscores the fact that although Canada is heavily dependent on the fate of the US, the relative picture is still quite favorable north of the border.
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