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The American dollar initially rose against the euro and a number of other world currencies against the background of good data on the US labor market, and then declined after the Fed chairman spoke on the topic of monetary policy and said that he would not leave his post, even if the USA President Donald Trump asked.

High market volatility has always been present with this kind of data, especially if they were very different from economists' expectations. It happened last Friday when the euro fell sharply, and then also quickly recovered.

According to a report by the US Department of Labor, the number of non-agricultural jobs in December 2018 increased immediately by 312,000, while economists expected the figure to be at 176,000. US President Donald Trump called the employment data released Friday unbelievable.

Exchange Rates 07.01.2019 analysis

The average hourly earnings also changed, which, taking into account the correction, increased by 0.4% compared to November and by 3.2% compared to the same period of the previous year.

These data indicate that the US economy has maintained a strong growth momentum at the end of 2018, even despite the situation with stock markets.

As for the general unemployment rate, it increased to 3.9% versus 3.7% in November 2018. Economists had expected unemployment, on the contrary, to drop to 3.6%.

The US service sector in December showed slower growth than in November. This happened because of the decline in the rate of new orders, which fell quite strongly. According to HIS Markit, the purchasing managers' index for the service sector in the USA in December 2018 dropped to 54.4 points, against 54.7 points in November. Let me remind you that values above 50 points indicate an increase in activity.

If, on the labor market data, the US dollar strengthened its position, then, after the Fed's speech at the forum in Atlanta, the market completely changed its direction.

Jerome Powell said that 2018 was good for the US economy, and therefore most of the important data remains strong enough to keep up the momentum in early 2019. Powell is also confident that the acceleration of wage growth, which I mentioned in the report above, will not cause serious inflationary growth in the future. Given the restrained inflation rates, the Fed will be more patient, watching further the development of the situation in the economy when deciding on interest rates.

Despite the fact that the ISM report turned out to be worse than expected, US data seems to continue to indicate a good momentum in early 2019, as consumer spending remained strong until December 2018, inclusive.

Jerome Powell also noted that current monetary policy is closely related to risk management, and the Fed is always ready to change policies, even significantly if necessary.

At the end of the speech, the Fed Chairman noted that he would not resign if even the US President asked him to do this, and the best thing he can do now is to pursue the most transparent and predictable policy.

As for the current technical picture of the EUR / USD currency pair, a further upward trend will be limited to an intermediate resistance level near 1.1450, a breakthrough of which will increase the demand for the euro, which will lead to a test of new highs in the 1.1480 and 1.1520 areas. Also, we should not forget about the downward correction, to work out the lower boundary of the ascending channel, which is located in the area of 1.1370.

*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.

Performed by Eder Anderson,
Analytical expert
InstaForex Group © 2007-2019
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