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Unlike all the lovely ladies in Victoria’s Secret Fashion show, the U.S. nonfarm payroll report didn’t live up to expectations.

The judges… err, I mean economic gurus, were expecting a vivacious figure of 143,000.

Instead, we ended up with an ultra-slim figure of just 39,000. This looked even worse due to the fact that October’s report was upwardly revised to 172,000. Unlike the fashion world, a figure inching closer to size-0 is a no-go for market players!

Moreover, the unemployment rate spiked up to 9.8%, its highest level since April earlier this year! This was just as bad as Akon’s performance at the show (sorry buddy, lip-syncing just doesn’t cut it!).

The NFP report was in sharp contrast to the ADP data that was released earlier this week, which generated some buzz by printing a rise in employment by 93,000. Naturally, the markets didn’t clap in approval once the show was over.

Within minutes after the release, the Greenback found itself tripping on the catwalk, with EUR/USD climbing back above 1.3300 and USD/JPY falling under 83.00.

It looks like the usual dynamics between risk and economic data risk aversion have changed. In the past, the dollar would rally on poor economic data due to risk aversion.

But now, disappointing U.S. data seems to lead to dollar sell-offs, as it opens up the possibility of more QE from the Fed.

In fact, according to an interview done by 60 Minutes (yes, that’s the TV show) on almighty Ben Bernanke of the Federal Reserve, without quantitative easing, the 2.5% GDP growth we saw in the third quarter would not be sustainable.

He also added that the U.S. unemployment rate probably wouldn’t fall to normal levels until 2015, implying that the Fed could even further expand its quantitative easing program.

Not a positive sign for the market…

Meanwhile, Bernanke also assured that markets that the bank will not allow inflation to rise above 2% and will raise rates if they have to. Still, the grim outlook on the U.S. economy and the skimpy job market isn’t impressive, so I do think that the prospect of low interest rates and possibly more QE could weigh down on the dollar.

Remember, when the idea of QE2 was first whispered, we saw the dollar get waved off like a set of head-to-toe prints.

If we are indeed seeing a return to fundamentals, the direction which EUR/USD will head probably depends on who can do a better job of impressing the markets: the Fed or the ECB.

Note that both the U.S. and the eurozone are struggling to revive their economies and restore investor confidence.

The ECB has already taken a step to inch its way past the Fed! Part of the reason why EUR/USD skyrocketed in Friday’s trading was that the ECB bought bonds of peripheral nations to calm jittery markets.

Now I guess, we’ll have to wait and see if the Fed pulls off a comeback. Word on the street is that it could be QE3. Do you think it will wow the markets?