Morning Note: U.S. Jobs Surge Spurs Dollar Rally, Shakes Global Markets

Strong U.S. Jobs Boost Dollar Rally

Last Friday, data from the U.S. Labor Department showed that the U.S. economy added 256,000 jobs in December, significantly exceeding economists' expectations of a 160,000 gain. Meanwhile, the unemployment rate dropped to 4.1%, lower than the expected 4.2%. Average hourly earnings rose 0.3% last month, which is in line with expectations. Such stronger-than-expected data may contribute to the continuation of the U.S. dollar rally.

(U.S Non-Farm Payrolls, Source: Markets.com)

(U.S. Dollar Index, Source: Markets.com)

From a technical analysis perspective, the overall trend of the U.S. dollar remains bullish, as indicated by the higher highs and higher lows within the ascending channel. It has recently broken through the resistance zone with significant bullish momentum. However, there’s a possibility of a retest of that resistance zone as a support zone before continuing the bullish movement, driving the price upwards.

UK Markets Hit by Borrowing Costs

The uncertainty surrounding President-elect Donald Trump's foreign and economic policy, coupled with a sudden spike in global borrowing, has led to a crisis for Rachel Reeves, as she might have to forecast tougher lending criteria and lower government expenditure. On the other hand, the UK remains one of the most affected markets by the recent increase in borrowing costs, and such an impact may continue this week as well.

(GBP/USD 4H Price Chart, Source: Markets.com)

From the technical analysis perspective, the overall trend of the GBP/USD remains bearish, as indicated by the lower highs and lower lows within the descending channel. It has recently broken through the support zone with significant bearish momentum. However, there’s a possibility of the retest of that support zone as a resistance zone before continuing the bearish movement, driving the price downwards.

BOJ Inflation Worries Lift Yen

Sustained prospects for wage gains in Japan and possible cost increases for imports thanks to a weaker yen have placed the Bank of Japan more alert about rising inflationary pressures, which could force a revision of its price forecast this month. Even if the Bank of Japan implemented the revision of the inflation forecast, this would not alone lead to a hike in interest rates if such revision was due to temporary factor increases such as the price of rice and higher import costs. Moreover, markets have priced in the possibility of a rate hike from BOJ, therefore strengthening the Japanese Yen.

(GBP/JPY 4H Price Chart, Source: Markets.com)

From a technical analysis perspective, the overall trend of the GBP/JPY remains bearish. Significant bearish momentum has broken through the ascending channel and the previous strong support zone. With such strong momentum, the price may fall to the support zone below without resting the previously broken structure.

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Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.