Dollar Gains Traction as Yields Head North

Following Friday’s stronger than expected US employment report, Bond prices fell sharply as yields surged. The 20+Year Treasury bond iShares (TLT) tumbled in robust volume. That made utilities the day’s weakest stock group tumbling 4% on Friday in heavy trading. Interest rate sensitive stock sectors such as utilities has very bad days. The XLU broke its 50-day average for the first time in four months. Utilities compete with bonds for yield, and are hurt when rates jump.

The 257k U.S. January payroll rise, after annual revisions that lifted the December level by 245k, beat assumptions and set a positive tone for the report, as did firm component gains of 22k for factories and 39k for construction, and a big 0.5% average hourly earnings rise that left a 2.2% year over year climb. As expected there was a 0.2% rise in hours-worked in January, and the workweek remained at its cycle-high 34.6 for a third month. The household survey showed big gains of 759k for civilian jobs and 1,051k for the labor force, though this encouraging mix left a jobless rate rise to 5.7%.

The 257k January payroll gain included a 227k private job rise and a 10k government employment drop. For the cumulative effect of prior annual revisions on reported December levels, there was upward level adjustments of 245k for total employment and 289k for private jobs, but with a 32k downward bump for government jobs.

Higher treasury yields gave a boost to the greenback, pushing the EUR/USD currency pair lower. Short term momentum is poised to turn negative with the MACD about to generate a sell signal. Resistance on the currency pair is seen near the 10-day moving average at 1.1345, while support is near the recent lows 1.1115.

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