In reaction to a stellar jobs report in the US, at least as far as the headline figures go, the US dollar
immediately headed higher but respected major resistance levels, at least until the open of the New York Stock Exchange.
The US jobs report for April tallied a total of 324,000 new non-farm jobs, 288,000 in April - easily surpassing the analyst consensus of 220,000 - plus a combined 36,000 in revisions to the two prior months.
The report also showed improvements for some of the more vulnerable segments of the population, including the long-term unemployed.
The unemployment rate registered a large drop from to 6.3% from 6.7%, much better than the 6.6% expected. However, the decline was due to a drop in the participation rate to a 35-year low of 62.8% (from 63.2%).
This shows that plenty of slack could remain in the market even though the headline results point to an overwhelming improvement.
Also supportive of the thesis of ample slack still being in place, average hourly earnings remained unchanged in the month, less than the 0.1% increase expected. The year-on-year change was actually lower at 1.9% from 2.1% a year ago. Additionally, average weekly hours remained unchanged.
The EUR/USD was changing hands just above the support at 1.3810 in the immediate aftermath of the release, as compared to the 1.3860 level ahead of the jobs report.
The decline in GBP/USD was smaller as it quickly bounced off a bullish trend line. The pair was near 1.6870 before spiking lower and firming at around 1.6840.
USD/JPY also spiked higher and closed the hourly candlestick at exactly the resistance level of 102.77. This pair remains closed to the intraday high of 103 and appears to be the most dertemined in taking out resistance.
The low volatility USD/CHF rose straight through 0.88.
The US dollar also moved higher against emerging currencies but not by a significant margin.
The initial move against its North American neighbors was interesting, registering a slight gain against the Canadian dollar and actually falling against the Mexican peso.
Market commentators appear surprised by the lack of market reaction to the overwhelmingly strong jobs report. The remaining slack in the market and lack of inflation have analysts wondering just how long the Federal Reserve will stick with accommodative policy.
It remains to be seen whether there will be a bullish continuation in the US dollar. Analysts at fxmania expect it to be limited against the majors considering that a strong US economy is positive for other developed economies and the global economy. Greater risk appetite does not usually translate into a strong dollar.
Ahead of the opening bell, US equity futures were flat. Nonetheless, investors will keep in mind that the main indices are at record highs. The 10-year bond yield remains at a still low 2.66%.