Dollar drops across the board after March payrolls dropped 80,000 following a downward revision of 76,000 (from -63,000), while the unemployment rate jumped to 5.1% from 4.8%, the highest since September 2005. Average hourly earnings rose 0.3% matching the previous figure and consensus forecasts. Comparing to previous recessionsThe 2000-02 recession had as many as 15 consecutive months of negative payrolls between March 2001 and May 2002 producing a monthly average of 148K, while in the 1990 recession lasting for 11 consecutive months between July 1990 and May 1991, producing an average of 147K. In the current slowdown (not yet officially declared a recession), we’re only in the third straight monthly decline in payrolls, with the average standing at 59K. Thus, to be consistent with previous recessions, payrolls will likely register negative readings for the rest of the year into Q1 2009. This also means that the unemployment rate will likely climb to as high as 5.9-6.0%Why and How 1.0% Fed Funds Before year End?The 0.3 point jump in the unemployment rate to its highest level since September 2005 confirms what we mentioned following yesterday’s higher reading in jobless claims, namely a 1.0% interest rates before year’s end. With 2.25% in today’s fed funds rate, we expect the Fed to go for 50 bps later this month as there is no meeting scheduled in June, therefore we doubt whether the market psychology could sustain operating smoothly without a Fed easing for two months. Producing a 1.75% Fed funds in April, the Fed is then scheduled to meet five times for the rest of the year, which is sufficient frequency for cutting rates by an aggregate of 75 bps a the economy traverses the worst phase of the current downturn. USD/JPY to test 101.50We expect the pair to combine reduced risk appetite alongside weak U.S. data and be dragged below the 102 figure and reach to as low as 101.50s. In line with our previous analysis of the S&P 500 failing to breach above the 1380 as 3% above the 50-day moving average, we anticipated U.S. equities to reach towards the 1,330s, which will accelerate the USD/JPY retreat towards 101.80 and onto 101.50. Euro Capped at $1.58After briefly soaring to $1.5780 on the figures, EUR/USD pulls back towards 1.57, facing support at $1.5670. While it maybe too early to assess conditions, we expect the Fed to opt for the 50 bps rate cut option as there is no meeting scheduled in June, therefore we doubt whether the market psychology could sustain operating smoothly without a Fed easing for two months. Fresh escalation of hawkish rhetoric from the ECB boosted the pair past the $1.5650s and onto $1.57. Support stands at 1.5660,backed by 1.5620.
USD/CAD Supported at ParityUSD/CAD will likely remain supported at 1.00 as the CAD fears the U.S. slowdown. This thesis is already in play following this morning’s jobs report from Canada showing the unemployment rate to have risen to 6.0% in March from 5.8%, versus expectations of no change, while the net change in jobs rose 14.6K, matching expectations of 14.3K and following a 43K in February. USD/CAD faces interim support at the 50-day moving average of 1.0020, which also coincides with the 50% retracement of the move from the 0.9708 low thru the 1.0324 high. Upside expected to extend towards 1.0080, followed by 1.0090. Ashraf LaidiChief FX StrategistCMC Markets US140 Broadway, 30th FloorNew York, NY 10005Email: a.laidi@cmcmarkets.com Offices: London - New York - Sydney - Beijing - Hong Kong - Frankfurt - Toronto Head Office: CMC Markets UK Plc 66 Prescot Street London E1 8HG United Kingdom All information contained within this email, and any attachments, are subject to CMC Markets standard Terms and Conditions - which can be found at: http://www.cmcmarkets.com
