The dollar made sizeable gains against all currencies following strong U.S. July jobs data nL1N2PC32T that reinforced this week's major rebound in Treasury yields, and allayed some fears about the economic recovery losing momentum due to rising COVID cases and receding enhanced jobless benefits.
Even discounting for pandemic-skewed seasonal adjustments which inflated July's payrolls via a huge 240k surge in government jobs, July private payrolls were up a very robust 703k and the jobless rate tumbled to 5.4% from 5.9%, despite decent growth in the workforce.
All-in-all, the report reinforces the view, expressed by a growing number of Fed officials, that tapering of asset purchases should start soon, particularly in case rising wages and inflation prove more enduring than expected.
Dollar gains Friday were reinforced by the fact that, unlike the July 2 jobs release, into which Treasury yields and the dollar were both elevated, Treasury yields have just finished retracing roughly half of the huge August to March rise with this week's lows nL1N2PD1DR.
And the dollar's late-July pullback rectified recent overbought readings.
EUR/USD fell 0.6%, and breached July's 1.1752 low on EBS to make a 4-month low, putting 2021's 1.1704 low in potential jeopardy.
Five-year Bund-Treasury yield spreads have tumbled almost 10bps, just since Tuesday, and are nearing June's -1.51% closing low.
A break below March's 1.1704 low, and the 38.2% Fibo of the entire pandemic recovery at 1.1694, would suggest a major head-and-shoulders top pattern is unfolding and the 50% Fibo and weekly cloud base at 1.14925 could be in play.
An unexpected fall in German industrial output, due to bottlenecks, made euro selling a shade easier nL8N2PD1G9.
USD/JPY gained 0.43%, highlighting the contrast between the bullish dollar reaction to Friday's jobs report and the bearish one to the July 2 June NFP release that induced a 0.6% dive from that day's 111.66 trend high.
USD/JPY was overbought on July 2, rather than just coming off a major pullback the past few weeks.
And Treasury yields in early July were still pricing in more Fed tightening than was practical.
USD/JPY soared Friday toward the July 23 swing high and 61.8% Fibo of the July-August drop at 110.54/59, from Wednesday's ADP miss induced 108.725 EBS trough.
A breakout above those hurdles would open the way to July's 111.66 high.
USD/JPY's main lift came from rapidly rising Treasury yields, and spreads above relatively static JGB yields.
Japan's pandemic struggles suggest JGB yields will remain at deep discounts to Treasury yields nL1N2PD1FZ.
Dimming demand for the haven yen were U.S. stocks making new record highs, despite the surging Treasury yields that they compete against.
Sterling fell 0.4%, again finding sellers by the daily cloud base and 55-day moving average.
Now at its lowest in 7 sessions, and past Thursday's BOE meeting, further retracement of the 1.35725-1.39835 late July rebound is possible.
The 38.2% and 50% Fibos are at 1.38265/778.
Aussie lost about 0.65%, roughly in line with other high-beta currencies suddenly beset by the attraction of surging Treasury yields and the drop in commodities priced in USDs.
Bitcoin led ether in moderate gains, with both showing signs of expanding their recoveries from summer lows.
Next week's economic report highlight is Wednesday's U.S. CPI, with the m/m core rate forecast at +0.4% vs +0.9% in June.
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