iFOREX Daily Analysis – 08/02/2016

 | Feb 08, 2016 03:52AM ET

The dollar rebounded against a basket of the other major currencies on Friday after the latest U.S. jobs report showed that wage growth accelerated in January, indicating that the Federal Reserve could still raise interest rates this year.

The U.S. Department of Labor reported that average hourly earnings rose 0.5% last month and were up 2.5% on a year-over-year basis. The economy created 151,000 jobs last month, the lowest number since September and less than the 190,000 forecast by economists’. Despite the slowdown in jobs growth the unemployment rate fell to 4.9%, the lowest level since February 2008.

The pick-up in wage growth bolstered the outlook for inflation and increased the likelihood that the Fed could raise interest rates this year.

In the week ahead, investors will be looking to Wednesday’s testimony by Fed Chair Janet Yellen and Friday’s data on U.S. retail sales, for further indications on the strength of the world’s largest economy. Friday’s preliminary report on euro zone fourth quarter growth will also be closely watched, amid heightened expectations for more easing by the European Central Bank in the coming months.

Today markets in China will be closed for the Lunar New Year holiday; in the euro zone, Germany is to release data on industrial production; and Canada is to publish a report on building permits.

EUR/USD

The euro retreated from three month highs on Friday, while halting a four day winning streak, as a relatively strong U.S. jobs report shifted market expectations for the Federal Reserve's next interest rate hike into 2016.

The currency pair traded between 1.1109 and 1.1246 before settling down 0.43% on the session. Previously, EUR/USD surged more than 2.5% since Wednesday completing its strongest two day rally since the August flash crash.

On Friday morning, the U.S. Department of Labor said nonfarm payrolls increased by 151,000 in January, falling considerably from a downwardly revised 262,000 in December. The sharp declines were blamed in large part to unseasonably warm temperatures over the previous month, which created an unanticipated demand for labor in the construction industry. The unemployment rate, meanwhile, inched down 0.1% to 4.9%, falling to its lowest level since February, 2008.

Today investors’ will focus on Germany data on industrial production while lately in the week Friday’s preliminary report on euro zone fourth quarter growth will be closely watched.