USD: will it ignore another good NFP number?

t was a wild ride for the USD on Thursday. Firstly the buck went up on the back of a good headline GDP reading for Q3, then it fell sharply after the markets digested the news that things were not as good as originally thought. The dollar index is hovering close to recent lows the 50-day sma at 80.35.

The dollar’s immunity to good domestic economic news

Since the last NFP report the dollar index has actually traded lower, falling more than 1% even though NFPs for October beat expectations and rose by 205k. So could the market ignore another good NFP print?

We think there is a greater potential for a positive reversal in the USD if we get a 200k + reading later today (’s prop model is looking for a reading of 207k). The 120 day correlation between 10-year yields and the dollar index has climbed to 0.65, one of the highest levels since 1971. Although the correlation between DXY and Treasury yields has diverged in recent days, a sharp mover higher in Treasury yields could boost the dollar. As my colleague said here, 2.9% - the Sept 18th high – is a major resistance level for Treasury yields, a break through this level may be DXY positive. Key resistance includes:

80.85 – daily cloud top.
80.90 - the 100-day sma.
81.48 – high from 8th November.

If you don’t like the idea of the dollar index then USDJPY tends to be sensitive to NFP releases. This pair is in recovery mode after dipping to 101.65 yesterday. USDJPY has a strong correlation with the US-Japan yield spread, and if the spread widens on the back of a strong NFP number we could see further USDJPY upside. Key resistance lies at 102.85 – high from 4th Dec, then 103.40 – high from 3rd Dec.