The US dollar is back to work: It is gaining impulse and strengthening its positions over the market, amid the political crisis in the United States. The recent significant events, as well as the expectation of impeachment proceedings, supported the USD bulls. On the other hand, the growth in anti-risk sentiment allowed the EUR/USD bulls to develop a downward impulse, which was followed by a successful consolidation within the 1.21 mark. However, the key support level of 1.2100 is not yet overcome, so it is too early to talk about a reversal of the upward trend. To be able to do so, sellers need to be identified in the area of the price level of 1.20, which is under the lower line of the Bollinger Bands indicator on the daily time frame. Until that happens, every event can be perceived as a large-scale correction after reaching a two and a half year price high (1.2349).
It is noteworthy that December's Nonfarm was overshadowed by the political war, which ended up tragically, resulting in a Capitol attack where five people died. Analyzing the moral and ethical aspects of the current situation, it can be concluded that the latest events in Washington saved the US currency, since the publication of Friday's labor market data left a very unclear impression. Many components of the release came out worse than expected, reflecting the slowdown in the labor market.
In particular, the number of people employed in the non-agricultural sector declined by 140 thousand, contrary to the forecasted growth of 70 thousand. This indicator went negative for the first time since April 2020, when the peak of the coronavirus crisis was recorded in the States. The growth rate of the number of employed in the private sector also showed similar dynamics: It declined by 95 thousand, although it was expected to rise by 100 thousand. Moreover, the average working week and the share of the economically active population have decreased, while the unemployment rate remained the same, that is, at around 6.7%. However, this fact hardly consoled the dollar bulls. The unemployment rate does not react so quickly to the current situation – this indicator refers to lagging economic indicators. Therefore, traders' certain optimism about low unemployment is early, since more operational indicators indicate rather alarming trends.
Now, let's talk about salaries. The growth rate of average hourly wages came out at an unusual high level – at around 0.8% in monthly terms (although this indicator generally goes in the range of 0.1-0.4%), and around 5.1% in annual terms (with usual fluctuations within the range of 3-4.4%). However, there is still no reason to be optimistic, since these numbers increased due to the disproportionate loss of work by low-paid workers and their reduced wages, and not because of the general wage growth which would be very surprising in the current conditions. This situation was already observed in the United States last spring in the wake of the first coronavirus crisis.
To put it simply, Nonfarm was disappointing. Most experts believe that Friday's numbers are unlikely to push the Fed to respond in the form of rate cuts. But the issue of expanding incentives can be considered resolved, even despite the rescue package of assistance to the US economy.
The EUR/USD pair updated session highs in the first minutes after the release of US Nonfarm, but almost immediately declined. The failed report faded into the background amid significant events. This week, politics will also take the lead in the currency market.
It should be recalled that that representatives of the Democratic Party will try to remove Donald Trump from the office – either by applying the 25th amendment to the Constitution, which means that the head of state is declared incapacitated, after which powers are transferred to the vice president or by impeachment. Congressmen will vote for the first option today or tomorrow, however, the relevant resolutions of the House of Representatives and the Senate will not have legal force: they are naturally an advisor, so the final say rests with the Vice President of the White House. According to sources in the American press, Mike Pence does not currently intend to apply the 25th amendment to the country's Basic Law.
The second option remains – impeachment. The petition on the need to consider the issue of impeachment of Donald Trump has already been signed by 180 deputies of the Lower House of Congress. It is likely that Congressmen will start this process this week. However, this scenario is more populist than practical. It is worth noting that Joe Biden will take over as president literally in 9 days (January 20), whose victory has already been approved by Congress, whereas the impeachment process is quite prolonged. For example, Democrats initiated this procedure last 2019, but it dragged on for several months (from September 2019 to February 2020). Therefore, their current actions should be viewed from a different angle. As explained by the American media, the Democrats intend to launch Trump's impeachment procedure to include a ban on holding public office. This circumstance will not allow him to nominate his candidacy for the presidential election in 2024, that is, it is more about preventive measures.
However, the market is not used to going into details, as they react to loud headlines and public outcry. Therefore, the dollar bulls will most likely control the situation in the near future, at least in the EUR/USD pair. A safe dollar will be in demand, especially amid rising Treasury yields and declining stock markets. But considering the recent Nonfarm, it is too early to talk about the dollar's total recovery. It is only afloat due to political issues, while such fundamental factors are quite fleeting. In this case, short positions still look risky. Under such conditions, you can either consider opening short to the level of 1.2100 (lower line of Bollinger Bands on D1), or start by opening longs from the current positions to the level of 1.2260 (Tenkan-sen line) and 1.2330 (upper line of Bollinger Bands).
