XM does not provide services to residents of the United States of America.

US Open Note – Dollar stabilizes, equity volatility subsides



Dollar calm after disappointing November US jobs report; ISM services PMI up next

Despite comments from Fed Chair Powell regarding omicron variant risks to inflation and employment, and how this could ultimately slow the progress in the labour market and reinforce supply disruptions, the markets seem to have brushed off these underlying threats for now, with US stock futures and the forex arena in a calmer mood even after today’s key US employment data.

A faster taper narrative seems to be gaining more fans among Fed officials and a Q2 lift off and a booster hike in Q3 remain fully priced in.

The dollar remains ahead in the forex arena, despite the disappointing employment report today. In November, 550k jobs were expected to be created, however, the non-farm employment report came in at only 210k, with average hourly earnings rising at the same pace as previously. That said, the unemployment rate fell to 4.2% from 4.6% in October and beat the forecast of 4.5%, signalling that the labour market remains robust despite the jobs created.

Softer jobless claims last week are signalling that the employment sector is creeping closer and closer to full employment, which could aid wage figures in the future. This could bring a sparkle to the Fed’s eyes, given that it puts weight on strong wage growth, while hours worked in the week also improved.

This may give credence to a more hawkish approach from the Fed towards tapering and cement expectations of 2022 Q2 lift off, which is a positive for the dollar.

The continued expansion in the US economy, signalled by the October ISM manufacturing PMI is another positive driver.

The final Markit services PMI from the US will be released at 14:45 GMT, ahead of the ISM services PMI and factory orders at 15:00 GMT. Stronger figures could underpin the dollar, given the NFP results failed to do so.

The dollar index is holding just above the 96.00 level.

On another note, the final European services PMIs for November suggest the economic expansion continues, even though some areas missed forecasts slightly. Furthermore, ECB President Lagarde toned down odds for a hike in 2022.

The euro is trading a tad over the $1.1300 vicinity and the pound remains lethargic below the $1.3300 mark, both on uncertainty related to the omicron variant and the risks it poses to economic activity.

Loonie fails to capitalise on rally in oil but powers up on employment results

The black liquid’s downward risks appear to be minor now after the omicron coronavirus variant shock, which resulted in a $10 drop. Even OPEC’s decision to proceed with increasing its supply by 400k barrels per day has not caused WTI oil futures price to fall further. On the contrary, WTI is currently trading around the $68.00 per barrel mark, having recouped the dip towards the $63.00 level. WTI may continue to rise should omicron related uncertainty remain subdued and until a change in inventory figures takes shape moving into the winter period, which could ultimately result in OPEC tweaking their strategy in the new year.

Canadian employment today hit the numbers out of the park. The country added 153.7k jobs in November, dwarfing October’s creation of a mere 31.2k, while the unemployment rate also fell sharply to 6.0%, beating the expectation of 6.6%.

The Canadian dollar - which is strongly correlated with oil - did not move along with the pickup in oil prices and seemed to be exhibiting some weakness, however today’s employment data has given the loonie a boost. As a result, the USDCAD pair plunged around 90 pips to C$1.2745.

While the Bank of Canada has kept its rate hike expectations unchanged, changes in oil prices linked to uncertainty around the omicron variant could warrant some caution from the central bank. However, with today’s employment figures, the Canadian economy appears to be as robust as ever.

Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.

All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.

Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.

Risk Warning: Your capital is at risk. Leveraged products may not be suitable for everyone. Please consider our Risk Disclosure.