Jobs Report Sends Yields, US Dollar Flying: Where Next for the DXY, EUR/USD?
Treasury yields surged to yet new yearly highs this morning after the nonfarm payrolls report showed that the US economy added far more jobs in September than economists expected. As of this writing, the 10-year yield is up 2.5%, further steepening the 10-2 yield curve.
As a result, the US dollar index has gained half a percentage point, closing in on the 107 level level, while the all important EUR/USD par has taken a dive back to the 1.05 support.
It also comes on top of statements from San Francisco Fed President Mary Daly, who said the Fed may not need to raise interest rates further as progress is being made towards the 2% inflation target.
While adopting a dovish tone in her speech, Daily hinted that the tendency to hold rates steady may strengthen, citing signs of cooling in the labor market and a return to the inflation target. If Daly's view finds ground among other Fed Presidents, it is possible to see a change in opinion among 12 of the 19 members who favored a rate hike before the end of the year at last month's meeting.
On the other hand, some market commentators believe that the Fed has tightened the markets sufficiently and that the market may do what is necessary without the need for the bank to raise interest rates in the coming periods. Given that the high interest rate period is likely to continue in an environment of confidence provided by the US, bond demand may continue to increase and interest rate hikes may continue in this way.
Looking at the dollar index technically, it appear that the DXY is looking to test the critical resistance point at 108 after today's report. In the general outlook, we can see that the greenback will likely maintain its upward trend as long as it remains above the 106
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