• US non-farm payrolls fall 11,000 on November; unemployment rate falls to 10%; big downward revisions to prior payroll drops add 159,000 to rolls of the employed
  • ECB’s Bini-Smaghi: Recovery gradual; unemployment, fragile financial sector are risks
  • US factory orders rise 0.6% in October; September upwardly revised; strong
  • White House economist Romer: Unemployment report “most hopeful sign yet”
  • Fed’s Plosser: At this point doesn’t see need for more asset purchases
  • Gold tumbles more than $60 intraday, closes at $1161
  • US equities rally on jobs report but fail to overcome major Fibo at 1120; slide up 6 points at 1106
  • US Treasury yields soar 10-12 bp along the curve; 10-year yield ends at 3.47%; reached 3.51%

The “risk trade” and the associated correlations came unglued today as fears that the stronger employment report will bring forward an earlier than expected hike from the Federal reserve next year. Many had expected no hike at all, so the data was an eye opener for the most complacent dollar bears.

The reaction was confused at first in EUR/USD. Adding to the risk trade was the initial reaction but traders soon concluded that the report was too strong to ignore and the interest rate implications soon overwhelmed the “risk on” implications. EUR/USD began a sharp slide, find support briefly near the long-term trendline from March around the 1.4915 level.

Prices soon broke that level extending the fall through the 55-day moving average at 1.4854 and eventually breaking important support at 1.4830, briefly. We highlight 1.4830 because it is the intervening low between the double tops in the 1.5150/60 area. A sustained break of that level would open the way for a move to 1.4515 in the days and weeks ahead.

USD/JPY shot skyward after the data. It was the best of all worlds for the greenback as higher rates, higher risk appetites, whatever the market wanted to focus on, USD/JPY was going to benefit. There were very few sellers once 90.00/05 was broken with conviction. The buck raced to 90.75 before pausing. It closes at 90.40.

GBP/USD held up well relative to the EUR. M&A related demand may have slowed the pound’s descent while heavy EUR selling pressured the cross and helped the pound to outperform. Cable slipped as low as 1.6423 and ends at 1.6455. EUR/GBP closed at 0.9025, having been as low as 0.8992.

CAD outperformed on the crosses after a very strong Canadian employment report suggested a North American recovery may be underway. The dollar rose versus the Loonie, but far less than one would have expected given the nearly 2-cent loss in AUD at one stage. USD/CAD rose to 1.0597 from 1.0435 and AUD/USD slipped to 0.9160, having traded as low as 0.9109.

Bottom line: The market fears the Fed may be awakening. No early move to raise rates is expected, but an earlier move certainly is. Q2 2010 is about the earliest anyone sees a hike, at this stage.

Have a great weekend all!