2010-02-08: Dollar Rises to 8-month high on U.S. Non-Farms Report and European Worries
The dollar climbed to an eight month high versus the EUR on Friday after the release of the U.S. jobs report. Credit concerns in Europe are weighing on the market as traders have moved out of riskier currencies and into the safety of the dollar and yen.

USD
The greenback was significantly stronger across the board at the end of Friday’s trading with the lone exception coming against the Japanese yen. Driving the dollar higher was a combination of a strong U.S. jobs report and European economic sovereign debt fears.

At the end of Friday’s trading, the EUR/USD was trading at 1.3677 from an opening price of 1.3741. The pair shed 1.3% of its value from the previous week. The GBP/USD was also trading lower, trading at the price of 1.5639 after opening at 1.5733.

The release of the U.S. Non-Farm Jobs report by the department of labor helped to continue the bullishness of the dollar’s most recent rally. Despite the loss of 20K jobs for the previous month after expectations of an increase of 10K, the unemployment rate dropped to 9.7%. This shows U.S. employment conditions are improving from their low point in the recession. An expectation for the next month may be positive job growth.

The jobs report capped off a strong week for the dollar. This trend may continue for the upcoming trading week as traders will be looking for further positive economic data to verify the trend of an improving U.S. economy. Traders should be eyeing both Wednesday’s U.S. Trade Balance and Thursday’s Core Retail Sales numbers for confirmation.

EUR
The EUR fell sharply as concerns over European sovereign debt pressured the currency. Economists focused on the budget deficits for the nations of Greece, Portugal, and Spain. Investors sold off riskier assets in general with the EUR being hit particularly hard. The EUR/USD fell at one point to a 12-month low.

Some investors are anticipating a potential default on sovereign debt payments, or a possible bailout by the European Central Bank (ECB). The President of the ECB, Jean-Claude Trichet, said no new steps would be taken at this time by the bank to aid the struggling nations. A last resort could be rescue loans by the International Monetary Fund. However, this could bring with it tough economic requirements as conditions of acceptance, creating uncomfortable social ills for the accepting nations.

An expectation of a potential bailout of the struggling nations has eliminated much of the demand for the EUR. This could also eliminate any potential economic growth the Euro-Zone economy was expected to produce this year. This could further hurt the EUR against the dollar as the U.S. may begin raising interest rates well before the ECB begins tightening monetary policy, creating an interest rate differential that traders may exploit.

JPY
The yen was the lone major currency to appreciate against the dollar during Friday’s trading. The yen was boosted this past week due to the sovereign debt issues in the Euro-Zone. The flight from risky assets was a positive for the yen as risk aversion took center stage. As risk sentiment tumbles, the yen benefits.

The USD/JPY was trading lower against the dollar at 89.24 after opening Friday’s trading at 90.89. The EUR/JPY was also lower at 122.06 from 122.93. The currency fell 2.4% this week on European sovereign debt concerns.

Fundamentally, the fiscal concerns that shook the markets this past week should carry over into this week’s trading of the yen, driving the EUR/JPY lower. Technically, the EUR/JPY sits very close to its next major support level at 120.00. We could see the pair’s bearish run stall at this price level.

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