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Just when the Federal Reserve hinted at signs of an improving US economy, the US released a shocker - only 74,000 workers were hired in December, the weakest growth since January 2011.

The median forecast of the economists surveyed by Bloomberg projected payrolls would increase by 197,000. Estimates ranged from gains of 100,000 to 250,000. Last December, policy makers decided to cut monthly bond purchases from USD85 billion to USD75 billion, citing improvement in the labour market.

The coldest December in four years probably contributed to a slump in hiring at construction and recreation companies, while industries such as health care and accounting also cut staff.

Although the unemployment rate dropped from 7 percent to 6.7 percent, this figure is not to be confused with the notion of "more people being employed." In the US, the government's survey of households, from which the jobless rate is calculated, showed that 347,000 people left the labour force. Hence, the total number of people actually looking for work decreased. The participation rate, which measures the proportion of people who are employed or looking for work, decreased to 62.8 percent, matching October as the lowest since 1978.

Immediately after the news announcement, the US dollar fell against the yen, dropping over 100 pips to 103.82 in a couple of hours. EUR/USD also rose to a 2 week high, touching 1.3687.

Stocks in the US rose, sending the Standard & Poor's 500 Index higher for the week ending 10th January, as the weaker-than-estimated jobs report eased concern that the Federal Reserve may accelerate the pace of stimulus cuts. Early Monday morning, Asian stocks followed suit, with the MSCI Asia Pacific Index gaining 0.3 percent to 458.40.

Elsewhere in Canada, the loonie has dropped 2.2 percent among the 10 developed nation currencies tracked by the Bloomberg Correlation-Weighted Index, the worst performance. Figures from the Washington-based Commodity Futures Trading Commission show that futures traders increased bets for the first time in three weeks that the loonie will fall against the U.S. dollar.

The difference in the number of wagers by hedge funds and other large speculators on a decline in Canada's dollar compared with those on a gain - so-called net shorts - was 60,542 last week compared with net shorts of 57,956 the previous week.

Canada's dollar tumbled 6.6 percent in 2013, as the Bank of Canada continues to warn of deflationary risks.

Top News This Week

US: Core CPI m/m. Thursday, 16th Jan, 9.30pm.
I expect figures to come in at 0.1% (previous figure was 0.2%).

GBP: Retail Sales m/m. Friday, 17th Jan, 5.30pm.
I expect figures to come in at 0.5% (previous figure was 0.3%).

Trade Call

Long AUD/USD at 0.9000

On the H1 chart, AUD/USD has hit a one month high, touching 0.9033. The round number of "90" is significant because the big figure acts as a psychological support. Additionally, the Aussie has completed back-to-back weekly gains on 10th January, the first since August 2013.

With the dismal jobs report from the US last Friday, I expect dollar weakness to continue this week as traders take up positions.

We will go long once prices retrace to 0.9005, and a stop loss of 35 pips is set below the 12 Exponential Moving Average (EMA), at 0.8970. We will have two targets on this trade, exiting the first position at 0.9040 and the second one at 0.9075.

Entry Price = 0.9005
Stop Loss = 0.8970
1st Profit = 0.9040
2nd Profit = 0.9075

(click to enlarge)

Source: Forex Money Weekly: U.S. Job Growth Drops To 2-Year Low