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Mixed NFPs - Keep the Risk Trade Capped For Now

Last updated 11/6/2009 9:03 AM ET (GMT -5) 2 Comments

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Boris Schlossberg

Director of Currency Research, GFT

Non Farm Payrolls for October presented a decidedly mixed picture with headline unemployment rate jumping into double digits but the job losses from payrolls dropping bellow the  -200K  barrier, The unemployment rate reached 10.2% - the highest level in more than 26 years, breaking the psychologically important 10% barrier. However payrolls dipped below -200K to -190K for only the second time in more than a year indicating that layoffs are beginning to plateau. Additionally average hourly earnings increased to 2.4% y/y from 2.2% eyed suggesting that wage deflation has eased.

Despite the fact that the 10.2% unemployment rate may weigh heavy on consumer sentiment ahead of the key Christmas shopping season, capital markets displayed a relatively muted reaction to the data and were more encouraged by the deceleration in job losses rather than the increase in unemployment. Equity futures were off only modestly while risk trades in FX also saw only a moderate retreat. EUR/USD which had traded as high as 1.4900 ahead of the number retraced to 1.4850 in the aftermath the release.

The key question going forward is whether the capital markets will perceive today’s results as a wash out number and will look to the positive rate of change in the payroll data as precursor of better labor conditions to come.  If so, equities and risk FX may stabilize as the day progresses  and could stage a mild rally to the close. However, today’s NFP report fell far short of an unambiguously  bullish result and therefore the risk trade appears to be capped for the time being at 1.5000 EUR/USD until markets see further evidence of recovery in economic activity

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Comments (2)

FXDragon

November 06, 2009 at 09:22 AM ET

Rangebound trading between 1.50-1.47 sounds good for a while.

Demax

November 06, 2009 at 11:11 AM ET

Seems to me that most majors are fairly valued - until someone drops a mucking great rock into the pond.

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About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.