• December’s jobs report smashed expectations on all measures.
• The US Dollar is on the rise, but stocks can send it lower against the yen.
• The Fed’s balancing act becomes more complicated.

The US gained no less than 312K jobs in December, far above 177K or a slightly higher number as the ADP private sector report had suggested. Revisions add another 58K. Moreover, Average Hourly Earnings are up 0.4% MoM, above projections for 0.3%. Year over year, they accelerated to a new cyclical high of 3.2%.

There is nothing not to like in the report unless you are a stocks bull.

While the jobless rate rose to 3.9%, it remains very favorable in absolute terms. The rise is due to an increase in the participation rate to 63.1%, a promising development: more people are drawn to the workforce.

The US Dollar reacted as expected, rising across the report on the unambiguous upbeat report. This is the fourth-largest monthly jobs increase since the Great Recession.

But how will US stocks react? The upbeat data will encourage the Fed to keep on raising rates, and stocks could suffer. Thursday’s ISM Manufacturing PMI plunged beyond all expectations, triggering markets to price in a potential rate hike in 2019 and to rule out a hike. Stock markets are wary of further tightening. Futures dropped in the immediate aftermath of the NFP release.

Under this scenario of equity troubles, the safe haven Japanese Yen is set to rise. The same applies to the Swiss franc, albeit to a lesser extent.

So, the greenback has more room to rise, just not against the yen which may strike back.

Fed Chair Jerome Powell speaks alongside his predecessors Yellen and Bernanke. What will he say? His task becomes more complicated. Here is a quote from Senior FXStreet Analyst Joseph Trevisani on the live coverage:

The long-running question for the Fed, the essence of their data dependency is the impact of raising rates on the economy. Judging by today’s report rates have yet to affect the overall economy. The governors will not jump back to 3 hikes in 2019, but it seems clear we are still below the neutral rate

One thing is certain: volatility is set to continue.