Though the symbiosis between Fridays economic releases and immediate price action was somewhat debatable, the overall level of volatility in the majors was not. In the minutes after both the NFP and University of Michigans confidence numbers price action was relatively stable with fluctuations topping out at 35 to 40 points.
However, for those who kept their positions on, it only took a little time for trading opportunities to present themselves. Of the majors, the EURUSD carried the torch. With an initial 95-point euro favorable move just after the jobs report, the pair turned on a 1.3365 spike high for a massive 165-point drop to 1.3200 support. A mirror image of the euro, the USDCHF started off with a 100-point decline to 1.1885 followed by a quick turn to 1.2050 resistance. The yen bounced on 115 support in its pairing with the dollar, but the greenback push roused spot to 116.50. Finally, well of its yearly high, the pound was stopped cold on a run to 1.9730 and cascaded 215 points.
Headline reads on fundamental indicators are hardly the easily interpreted triggers that many believe they will be. This morning before the release of November NFPs, as the majors withdrew into 10-point ranges, market participants had already developed their bias for the almighty greenback. With a number of dour indicators in the past few months and mainstream media picking up on the contractions in US housing and manufacturing, many in the FX market were expecting latecomers to join the game and push the dollar even lower. This was perhaps the reason behind the hesitation and eventual drop in the dollar following a 132,000 print in last months employment report.
In a vacuum, the figure was better than the downwardly revised 79,000 in October as well as the last-minute update to economists estimates to 110,000. Furthermore, the numerous component reads of the labor report did not offer up a key to slant the overall feel of the data to the bulls or the bears. The jobless rate ticked higher to 4.5 percent (as was expected), but annual average hourly earnings reverted to match Septembers high. In the breakdown of the employment situation, construction and manufacturing firms shed jobs while those in the service industry picked up the pace on hiring as was expected. With interpretations evenly split on the data, the former anti-dollar trend was reinitiated; that is until Treasury Secretary Henry Paulson weighed in on todays numbers. A vocal advocate of a strong dollar, Paulson said todays NFPs print was good news and he believed the economy has found its way to sustainable growth. A worthy guiding light, the bulls were finally able to rally their disjointed ranks and drive the dollar on a stellar rebound.
Though the employment report and Secretary Paulsons comments were stealing headlines, the UMich consumer confidence report still exerted its unfavorable influence on dollar fundamentals. Slipping to a three-month low 90.2 for its initial December read, the survey was largely influenced through expectations. The outlook component of the gauge dropped 4.6 points to 78.6, offsetting the modest rise in current conditions. This comes as the easing in gasoline prices tapers while housing weakness continues in earnest. Looking ahead, a new life has been given to next weeks FOMC meeting. Futures markets are no longer pricing in a rate cut for the first quarter of 2007. Instead, markets are predicting the Board of Governors to respond to stable job growth and strong wage growth with its usual wait-and-see caution. Also in view are the securities and goods and services trade accounts, retail sales and consumer inflation.
Equities investors were carrying benchmark indices higher this morning following the better employment numbers. By 18:00 GMT, the NASDAQ Composite was setting the pace with a 0.53 percent advance to 2,440.52. The S&P 500 was trailing with a 0.21 percent climb and the Dow posted a 0.18 percent gain to 12,300.68. From the ranks of the movers lists, a potential deal between Bank of America Corp and British firm Barclays Plc had the banking sector moving higher. A report suggested BoA was very interested in buying its UK counterpart. Shares of BoA were 2 percent lower on a $1.04 decline to $51.45. From the Dow 30, McDonalds shares picked up a 1.2 percent or $0.54 gain to $43.82 after the fast food company reported a 6.2 percent jump in November same-store sales.
Treasury yields fluctuated wildly Friday morning as investors took todays labor numbers to mean an eventual rate cut from the Fed would be further off than originally predicted. T-notes fell 11/32nds to 100-25 by 18:00 GMT as its yield advanced 4 basis points to 4.524. Bonds were off 13/32nds to 97-30 while the longer-term yields grew 3 basis points to 4.628.
