Dramatic Events Force Forex to Volatility Highs

The US Non-Farm Payrolls has just been posted registering a drop of 20k compared to an expected gain of 15k. Despite the additional job losses, the US Unemployment figure dropped to 9.7% from 10% during January as a possible result of previous month’s adjustments.

During the night, increased risk aversion caused the Dollar to hit multi-month highs against most of the major currencies. The Euro is particularly weak as the costs of insuring the debt of Greece, Spain and Portugal from default have climbed to record highs.

The combined impacts of the Non-farm Payrolls release and European Sovereign debt problems have produced levels of volatility on the Forex not seen since the autumn of 2008 when a number of major banks filed for bankruptcy.

Although the EURUSD hit lows of 1.3650 during the night, the NFPs have just boosted the pair to highs of 1.3730 before falling again to 1.3675 (See hourly chart). The effect on the USDYEN is more unclear as the pair has been oscillating sharply since the NFP release and currently sits at 89.60.

However, expert consensus is still advising that the dollar should continue to strengthen because the European debt issue will have a more dominating longer-term impact than that of the Non-Farm Payroll result.