Dollar Slumped on Negative Payrolls by Yan Xu

The dollar slumped across the after US labor department released an unexpectedly weak employment report. Non-farm payrolls fell 4k in August, the first time decline in 4 years and far off the estimate of a 110k increase.

The negative job number solidified the expectation that the Fed will cut interest rates on its September 18 policy meeting. After the release of the report, the 2-year Treasury note yield fell below 4% for the first time in 2 years and the 10-year note dropped to a 9-month low. Interest-rate futures pricing showed traders added odds on a 50 basis point rate cut on September FOMC to 74% from 42% before the non-farm payrolls.
The euro broke the 1.37 handle and gained sharply to test the 1.38 level against the dollar. The sterling also rallied more than 100 pips to as high as 2.0323 versus the dollar, while the yen strengthened to 113.15 from above 115 versus the dollar.

US economy outlook is uncertain with subprime and credit market problem. Overall sentiment on the greenback is bearish and this also raises risk aversion. The yen becomes the biggest beneficiary as investors unwind carry trades.

EURUSD will face interim resistance at 1.38, followed by 1.3830 and 1.3850. Additional ceilings will emerge at 1.3880, backed by 1.39. Support starts at 1.3750, backed by 1.3730, 1.37 and 1.3670. Subsequent floors are eyed at 1.3650.

GBPUSD encounters interim resistance at 2.03, backed by 2.0330 and 2.0350. Subsequent ceilings will emerge at 2.0380, followed by 2.04 and 2.0430. On the downside, support begins at 2.0250, followed by 2.02 and 2.0170. Additional floors are eyed at 2.0140, backed by 2.01 and 2.0080.

USDJPY encounters interim resistance at 113.50, backed by 113.80 and 114. Subsequent ceilings will emerge at 114.30, followed by 114.50 and 115. On the downside, support begins at 113.20 and 113, followed by 112.80. Additional floors are eyed at 112.50, backed by 112.20 and 112.