EUR USD (1.3085) The gain was just a little more than one percent, but it was enough to qualify Friday’s rise in the dollar-index as the largest of the year. The steady rally even accelerated briefly after the better-than-expected US payrolls number. There seemed to be a tendency by analysts to downplay the employment data: some argued that it would taper off as the US GDP growth slowed in the coming quarter; others remarked that monthly payrolls were still too low to bring US employment back to pre-crisis levels before the end of the decade. We are somewhat surprised by any downbeat evaluation as the number beat the consensus, and there were meaningful upward revisions to past figures. Given a US ten-year yield comfortably established above the two-percent mark and inflation well-anchored, one would have imagined that investors would be talking about ‘green shoots’ and ‘Goldilocks scenarios’. Instead, they focus on peripheral Europe and China. Implicitly, they request the Fed to embark on QE3. However, the dollar appears to be in the process of pricing it out.
The euro re-exited its former congestion area to the downside for the second time on Friday. This means that there was no false break last week. The initial consequence – a retreat to 1.3070 – is already underway and a break there would signal weakness to 1.2930 (probably more). To the upside, 1.3230, where we noted heavy trading volume on Friday, is likely to prove a tough hurdle now.
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Deutsche Bank