3 Reasons Why High-Yielding Currencies Failed to Rally at Strong NFP Numbers

After seeing a strong nonfarm payroll (NFP) headline figure AND a surprise drop in the U.S. unemployment rate, you would think that investors would push high-yielding currencies to new intraweek highs. So why didn’t we see a huge rally last Friday? Here are three possible reasons.

1. Not-so-impressive NFP figures

Last Friday the NFP headline figure for November clocked in at 120,000, a reflection of the 140,000 increase in private sector and the 20,000 slip in public sector. The report is a bit lower than the 125,000 consensus, but is still higher than the upwardly revised 100,000 figure for October. Of course, we can’t forget that the unemployment rate surprisingly plunged from 9.0% to 8.6%, the lowest since March 2009. Booyah!

As good as the headline figures are though, some analysts aren’t impressed. For one, the rise in private sector jobs is still below this year’s average monthly increase (around 156,000). Not only that, some economic geeks also say that a huge chunk of the increase in the private sector is related to temporary and seasonal jobs in the retail industry. Lastly, the average earnings in November actually fell by 0.1% after rising by 0.3% in October.

2. Profit-taking

Could it be that your favorite high-yielding currencies simply reacted to profit-taking in markets? If you recall, the high-yielding currencies like the euro, pound, and even Happy Pip‘s comdolls had been clobbering the Greenback since early last week when six major central banks agreed to drop their dollar swap rates by 50 basis points.

Before the NFP report was released, stocks and other high-yielding assets were on their way to making days-long rallies not seen since the U.S. financial crisis back in 2008. Heck, EUR/USD even tipped above 1.3500 for a few days! But the possibility of the market rally being exhausted soon gained popularity and took its toll on the high-yielding currencies.

3. Uncertainty over next week’s events

My last and best bet as the reason why we failed to see a rally is somewhat connected to profit-taking. As it turned out, more than a few traders thought it wise to take profits ahead of the release of potential market-moving economic reports next week.

Aside from getting hold of the latest interest rate decisions from the ECB, BOE, RBA, BOC, and RBNZ, we will also see other major reports like China’s CPI, U.S.’ trade balance, Australia’s GDP and employment numbers, and the U.K.’s manufacturing production. The ECB is expected to cut its rates to boost economic growth in the region, while central banks from commodity-producing countries like the RBA are expected to keep their rates steady.

Of course, let’s not forget that next week will be another big week for the euro zone! European leaders are expected to have another EU Summit next week, where they are expected to follow up on the six central banks’ actions earlier this past week and come up with more solutions to solve the region’s debt problems. Word on the block is that investors are bracing themselves for another fruitless meeting, which is probably why some traders booked their profits early.

  • vincejg327

    NFP was already considered in the market. Unemployment drop to 8.6% IS due to seasonal jobs (Dah!) and it is still too high. Profit taking always happens but I agree, it might have impacted the market this time but I believe very slightly. However, as we have seen how wild the markets have been concerning the Euro Debt issue, traders are waiting to see how these idiots will finally resolve this issue. They will finally become a single economic powerhouse or will resort back to a gaggle of “City States” whos petty differences will drive them into a financial “Dark Age”.

  • snpfx

    unemployement rate drop in U.S? what do you think the fed will do?

  • MissTammyK

    You mention that this week (article was written last week) sees a lot of market moving news.  Because of the high volume of news this week, what would your advice be to newbies who are not really meant to be trading the news? 
    Is this week a week to be avoided you think?