US dollar strong after data and monetary policy shift

The US dollar has been strong across all major pairs after key data - much better-than-expected October employment growth and, critically, very big upward revisions in weak job creation this summer. The numbers support the greenback and underpin the Federal Reserve’s decision Wednesday to put dovish monetary stance on hold.

EUR/USD fell every day last week with the euro ultimately giving up about 150 pips against the US dollar by late afternoon New York trading on Friday. While technical analysts point to a EUR/USD bearish double top recently formed in the daily chart, it is interesting to note that EUR/USD dollar is still trading within the band of roughly $1.12 to $1.10, closing Friday around $1.1020, that has characterized the market since early October.

Key euro $1.10 support holding

That the greenback did not blast through $1.10 EUR/USD level – considered critical by Elliott Wave analysts – is instructive. The greenback failed to do this despite the sea change in attitudes about the US economy that occurred last week – consensus is now no recession vs consensus recession quite possible. And forecasts that the Federal Reserve will continue easing have been quashed.

Such a quick and decisive change in views on the US economy and monetary policy are rare and should perhaps have led to more EUR/USD volatility last week, with possibly a much stronger greenback move. Instead trading was orderly with a steady and measured US dollar move higher.

As has been the case, EUR/USD at $1.10 is the key level. If the euro can hold there it’s a much better case for EUR/USD to move higher despite the strong positive carry bias for the greenback. If the US dollar can breach $1.10 decisively it will be very difficult for the euro bulls to recover and the greenback will likely continue its push toward the four-year high of $1.05 that began nearly two years ago.