Friday's US jobs report changed the outlook for monetary policy for the rest of this year. Not only did the US economy create 272,000 new jobs, 82,000 more than economists' latest forecast, but also average hourly earnings rose 4.1% over the past 12 months, a worrying sign for inflation.
Treasury yields rose for the first time in seven sessions, sending the ICE DXY US Dollar Index up 0.8%.
Meanwhile, according to Bloomberg News, a more pessimistic view has emerged, with nearly four in 10 small-business owners preparing for a rate hike this year, a sharp reversal from three months ago, and more than half of them now believing the economy is headed toward stagflation.
Earlier in the year, arguments for lower rates were based on the hope that inflation and job growth would cool, but neither of those suggestions have yet materialized.
All of this comes as the Bank of Canada and the European Central Bank cut interest rates on Wednesday and Thursday, kicking off what many had hoped would be a global cycle of rate cuts that would eventually include the Fed.
What ended up happening was that on Friday, investment bankers, economists and traders began openly expressing doubts that the US central bank would be able to cut rates at least once this year. This is a sharp reversal from expectations at the beginning of the year.
If this scenario is accepted, one could see a gradual weakening of EURUSD over the next two to three months. The upcoming CPI report on Wednesday and the Fed's final statement may change a lot.
The overall recommendation is to sell EURUSD. Profit could be taken at the level of 1.0620. A stop loss may be placed at 1.0850.
The amount of possible loss should not exceed 2% of your deposit funds.
This content is for informational purposes only and is not intended to be investing advice.
