European currency continued positional trading against the U.S. dollar and on Thursday, May 1st, as traders prepare for the release of important fundamental data on employment in the United States, which can only exacerbate the position of the American currency in the medium.
NFP Day The US nonfarm payrolls for April are the focus today. This is a key indicator for all financial markets because of the importance of employment for the Fed, with its dual mandate to “promote effectively the goals of maximum employment, stable prices and moderate long-term interest rates" as well as the importance of employment as an indicator of the US economy’s health as a whole.
NFP growth has been remarkably steady. Over the last six months the average has been 188k; over the last year, 187k; over the last two years, 178k; and over the last three years, 187k. Not much difference. The market consensus today is for a larger-than-average rise of 218k, up from 192k in March. The forecast is assuming a steady recovery in the economy coupled with some bounce-back in employment as the cold weather ends. The unemployment rate is forecast to stay unchanged at 11.9% as discouraged workers come back into the workforce, raising the participation rate from last December’s low point.
Looking at USD/JPY, the pair that we find most responsive to NFP, it was actually lower a week later in three out of the last six positive surprises and unchanged once, meaning USD got a sustained rise only two out of the last six times there was a positive surprise.
In addition to the NFP figure, we should watch two other figures in evaluating the data: average hourly earnings and average weekly hours. The hourly earnings figure is important, because Fed Chair Janet Yellen has identified wages as an important indicator of the labor market. Her reasoning is that wages will start rising once the labor market starts tightening, so the absence of wage rises means a slack labor market, which means less reason to tighten policy = bad for the dollar. The reason we watch the work week is because regardless of all the emphasis on unemployment, in fact there are a lot more people working than not working and if each one works a bit longer and therefore gets paid a bit more, that can add up to a lot of money – far more than the additional wages of those people who get jobs each month. An increase of only 0.1 ppt in the workweek adds roughly as many working hours to the economy as an increase of 350k to payrolls does.
