Non-farm payroll’s limited impact on FX markets

Market analysis and insights from Stephen Innes, Chief Global Market Strategist at Axi, 

The Non-Farm Payroll data threw a damp cloth over the US exceptionalism trade on Friday. But if truth be told the EURUSD downside momentum was floundering pre-NFP above and beyond your usual NFP short covering.

While the NFP data rubbed salt in the dollar bulls’ wounds underscoring that the US is not immune to Covid-19-related drags on activity, and it should keep Fed communication relatively dovish over the short-term.

The truth is that data events good or bad seem to matter for about 8 hours, and then markets go back to trading global macro, S&Ps, and gold. With the US Federal Reserve nowhere close to being in play, I am not sure any NFP impact lasts.

The real story now is that the vast EURUSD seller looks to be done and positioning has flipped from max long to somewhat flat.

The divergence in the dollar’s pair-wise performance as the lift-off in oil prices provides a keen bullishness source for many cyclical currencies. Which saw the commodity block (CAD-AUD -NZD) off to the races post NFP.

Less comforting for high-beta FX, albeit without any adverse stock markets spillover, was the renewed push higher in US bond yields. We are nearing the point where traders stop viewing higher yields through a resurgent cyclical positive light and now fears of monetary tightening take over.

Malaysia is experiencing the worst Covid-19 outbreak in Asia, and a renewed MCO is likely to hit services growth in the short-term and is weighing on the Ringgit.

Still, the continued ascent of oil prices provides an essential reassurance source for the Malaysian market and the Ringgit. Strong exports and a stronger RMB could see the ringgit trade with a favourable bias, but any renewed push higher in US yields could dampen sentiment.

Gold scores some gains

Gold is trading higher post NFP on a weaker US dollar impulse, and likewise this morning in Asia, gold has opening bid on the same impulses.