The closely-watched US job report smashed forecasts on Friday with the US economy adding a surprisingly large number of jobs in February, resulting in an unexpected drop in the unemployment rate.

Non-farm payrolls increased by a whopping 236,000 jobs last month, well ahead of the 160,000 increase forecasted. The unemployment rate fell to 7.7% from 7.9% in January.

"The February non-farm payrolls data was expected to show the economy moving forward slowly but surely, not fast-forward like this," said Jason Conibear, trading director at forex specialists, Cambridge Mercantile. "These numbers will ignite the US dollar and next week could see it make considerable gains against both the euro and pound."

However, January's data was revised down substantially from 157,000 to 119,000.

Nevertheless, the important thing is the overall trend, which shows that the US labour market recovery is picking up.

As Conibear expected, the US dollar surged on the news, with the EUR/USD falling from 1.3085 to 1.3005 and the yen jumping from 95.80 to 96.58 within minutes.

"Interesting levels to ride the dollar would be going long on the pullback to 96 on the USD/JPY with support below that psychological level and shorting the EUR/USD to see whether it tests the support at 1.2962 (with stop-loss at 1.3050, the 50% retracement of the initial move)," wrote FXmania analyst José Piñeiro. "We expect the support to hold up but it will be interesting to see the potential attack at support."

However, the EUR is not expected to extend losses since, as Boris Schlossberg from BK Asset Management notes, "Bulls now have hopes that US acts as an engine for Eurozone exports."

However, analysts warn that one will need to see more signs of an economic recovery before we get carried. "One month does not a recovery make but this will give hope to the markets that the US economy is finally awakening from its slumber," Conibear said.

"Next month's data will now be massive. If the US economy is really improving it has to put these kinds of numbers on the board month in month out."

Piñeiro concludes: "Very good jobs report but not enough for an imminent change of stance in monetary policy. The Fed would like to see +250k jobs per month in order to bring unemployment down to 6.5%."

"Equities should fly higher with the Dow breaking new territories."

NJ

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