The dollar pushes higher from its session lows, following a better than expected US jobs report, but the resistance remains in line within the constraints mentioned in our earlier strategy piece (EUR 1.3360, USD/CAD 1.1530 and GBP/USD 1.9630).
The 180,000K increase in non-farm payrolls was largely above consensus forecasts of 120,000 to 130,000, and the unemployment’s rate decline to a 4.4% from 4.5% was the key highlight of the report. The 4.1% jobless rate matched October’s figure, which was the lowest since May 2001. Average hourly earnings slowed to 0.3% from 0.4%, with the year on year rate at 4.1% from 4.0%. Previous upward revisions totaled 32,000, when the February figure was revised to 113,000 from 97,000, and the January revised to 162,000 from 146,000
From the surface, today’s report seems to thwart any expectations of a H1 rate cut. But the report merits a closer look. The bulk of the recovery took place in construction jobs, which created a net 56,000 jobs, following a net decline of 61,000 in February. Improved weather conditions in March may have been a factor in the construction payback but evidence of continued structural weakness in the sector remains dominant.
The 16,000 decline in manufacturing jobs is the ninth-consecutive monthly decline in the sector, which is in line with the weak employment component of the ISM manufacturing falling below 50 in five of the past seven months.
The net slowdown in services jobs to 137,000 from 180,000 drives down the three-month moving average to 148,000, the lowest level since July 2006.
Although the near doubling in retail jobs education/healthcare to 36,000 and 54,000 helps stabilize conditions, we are not sure about the durability of these jobs, many of which are temporary and part-time.
While the establishment survey of today’s report shows gains that appear largely unsustainable, the household survey’s unemployment rate presents a strong argument against any upcoming Fed easing. The Greenspan has never cut rates without a consistent increase in the jobless rate, with the exception of the 1998 rate cuts, which were largely a result of market conditions (LTCM and EM crisis) rather than macro economic weakness.
The U.S. yield curve is flattening once again as two-year yields climb to 4.73%, narrowing the gap with 10-year yields at 4.75% to 2 bps from 8 bps prior to the report.
USD optimism may extend into another thin session in Monday, but sentiment should retreat ahead of next week’s FOMC minutes, which could shed more detail on the Committee’s thinking about the deterioration in the housing market.
Our morning call issuing a negative GBP/USD outlook remains in play as the pair drops from 1.9700 to 1.9640s. We could see 1.9620 before the end of the session.
USD/JPY breached our resistance of 119.20, now eyeing the 119.50 retracement. 119.80 remains a possibility into next week.
EUR/USD nears our 1.3360 support, a breach of which calls up 1.3320 at which point stability is expected ahead of next week’s ECB.
USD/CAD’s recovery remains capped under the 1.1530 resistance. A breach of the figure is seen short-lived at 1.1555.
Ashraf LaidiChief FX Analyst CMC Markets US 140 Broadway, 30th Floor New York, NY 10005 (212) 644-4220a.laidi@cmcmarkets.com
