jobs data strength can extend, but a long-term bull run is probably not in the cards.
Today's below forecast AHE coupled with a rising unemployment rate sent U.S. yields lower as the market leans toward a less aggressive Fed.
That said, the data is unlikely to significantly alter the Fed's current path given that an increase in participation drove the unemployment rate higher.
Headline NFP, as well as private and manufacturing sub-components, all provided solid upside surprises.
Thus, the Fed and ECB will likely remain on divergent paths, ultimately tempering EUR/USD gains.
Eurodollar futures suggest Fed tightening will halt in late 2019, while the Euribor market suggests ECB hikes will just be kicking off around that same time.
That said, once the ECB does hike, rates are expected to rise in just minimal increments.
Meanwhile, on a longer-term basis, out to early 2024, yield curves suggest that the greenback’s fairly-significant yield advantage will persist and the cost of carrying dollar shorts will remain elevated.
Thus, positioning long dollars is likely preferred unless euro zone growth dramatically shifts upward and the ECB takes a more aggressive stance on rate hikes.
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