Risk currencies drop as USD rallies

US dollar strength continues to dominate the FX space with the latest non-farm payrolls print coming in much better than expected.

The data showed the US added 195,000 jobs versus expectations of around 165,000. Analysts now feel the Fed is on course for September tapering as some of the ones who were still looking for tapering later in the year, like Goldman Sachs (which had pinned it for December), have since revised this to September.

The US dollar index jumped to a high of 84.59 and looks like it is headed to 85 in the near term. This resulted in a selloff for the risk currency pairs with AUD/USD dropping to around 0.905 and EUR/USD to 1.281.

There’s a big day for Europe ahead with Mario Draghi on the wires and Eurogroup meetings. There is also the German trade balance and industrial production readings to look out for. After Mario Draghi made some dovish comments about monetary policy going forward last week, the single currency is likely to remain under pressure in the near term.

AUD/USD continues to look bearish but we expect to see some buying interest in the 0.9 region. We would only look at selling the pair on strength as opposed to a momentum play at the moment. We highlighted this last week and the price action continues to look good for sterling bears. After the strong US payrolls report on Friday, GBP/USD fell to a low of 1.4856, although rallied a touch into the close.

All eyes now fall on the March 12 low of 1.4831, where a closing break would see the pair head lower, even though it has fallen 5.5% since the recent high on June 17. We continue to feel traders will sell rallies.

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