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Dollar Snaps Back After Payrolls

Based on the price action in the FX market, investors are relieved to see an increase in job growth.  Even though the unemployment rate ticked higher and wage growth stagnated, non-farm payrolls beat expectations, rising 175K compared to a forecast of 163K which was good enough to squeeze the dollar higher. The fact that payrolls exceeded 150K was enough for everyone including the Federal Reserve to breathe a sigh of relief.  The rise in the unemployment rate from 7.5% to 7.6% is an annoyance as is the stagnation in average hourly earnings and the downward revision to last month’s report but the U-6 unemployment rate, the number economists follow more closely actually declined last month, giving the central bank peace of mind.  As a result, today’s number will not change the conversation that the Fed is having about tapering asset purchases later this year.

For FX traders, the main question is whether today’s number will halt the aggressive decline in the U.S. dollar and put a bottom under USD/JPY. While the momentum is still to downside, the fact that the U.S. economy is creating more jobs is good news for the dollar.  Since USD/JPY peaked on May 22nd, it has fallen about 6% and an unambiguously weak payrolls report would have been the nail in the coffin for the currency that would have almost certainly driven it below 95. However the data wasn’t unambiguously weak since the headline number actually beat expectations, triggering a relief rally in the greenback.  The Bank of Japan also meets next week and there is a realistic possibility they will take additional action to stem slide in the Nikkei and rise in the Yen. This risk is yet another reason why anyone who has shorted USD/JPY down to 95 are now reversing their positions.

Filed in: Commodities

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