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Non-Farm Payrolls Falls 467K, Still Following 1980s Trajectory

Last updated 7/2/2009 9:01 AM ET (GMT -5) 9 Comments

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Kathy Lien

Director of Currency Research, GFT

A total of 467k Americans lost their jobs in the month of June, driving the unemployment rate to a fresh quarter century high of 9.5 percent.  The jobless rate was better than the market expected but the total number of job losses was worse.  The dollar rallied after NFPs on the fear that the trend of larger job losses is returning.  However after the dramatic improvement in May, it is natural to see an increase in job losses especially with layoffs at GM and Chrysler.  Government jobs were also cut by 52k which means that private sector payroll reductions represented only 415k jobs.  What does concern us is the flat growth in average hourly earnings and the decline in weekly hours because it suggests that companies are reducing working hours and cutting pay.

Yet the increase in job losses last month does not necessarily mean that we will return to the steep downward slope in 2008.  No one ever said that the path back towards positive growth will be a smooth one. In the 1980s, before job losses turned into job growth, there were many hiccups along the way.  At the time, we moved 2 steps forward and 1 step back which could be the current trend for payrolls as well.  In fact, even with today's dip in NFPs, the following chart comparing current job losses to the 1980s recession is eerily similiar (X axis: 1 equals the first month of job losses).

The important thing to remember is that job losses are still well off their January 2009 high of -741k and as long as we stay below 500k job losses, the the labor market and the U.S. economy is still moving in the right direction. Therefore even though the dollar has extended its losses, we could still see a reversal.  

The initial move in the EUR/USD following NFP is rarely the one that lasts for the rest of the trading day. Six out of the last six times non-farm payrolls were released, the knee jerk reaction was quickly erased.  There is no reason why it cant happen again.  Also keep an eye out for market moving comments from ECB President Trichet, which could add further volatility to the EUR/USD.  

EUR/USD& nbsp; Intraday move following payrolls report in June 

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Comments (9)

Ala

July 02, 2009 at 09:49 AM ET

Hello Kathy,

Where do you see the risk appetite/aversion in this picture?

What I understand from your article is that this employment data shows the US economy is still recovering or at least there are no signs of otherwise. This by itself doesn’t give an indication of where the greenback is heading, does it?

Regards,

klien

July 02, 2009 at 09:51 AM ET

Even though I believe that in the grand scheme of things that the U.S. economy is still recovering, there is no doubt that risk aversion is dominating trading right now and we have to respect that price action.

Ala

July 02, 2009 at 10:28 AM ET

Thanks Kathy!

And as we've got this vague data signs of the moment coming within this greater scheme of recovery, do you think tha the risk factor is a primary player in the forex market?

Regards,

klien

July 02, 2009 at 11:06 AM ET

Absolutely, risk aversion is driving flows right now

Ala

July 02, 2009 at 11:11 AM ET

i liked your assertive answer. Thanks!

Dario Fuentes

July 02, 2009 at 12:35 PM ET

Hi Kathy,
According to this, investors bought dollars on the Non-farm employment news because of risk-aversion as we saw today a decrease in the equity market? I am also wondering if due to the optimistic enviroment, this fact will turn around and investors will sell off dollars based on risk-appetite and drive the GBP/USD to 1.70 and EUR/USD to its year-high?
I also have a quick question and if you can help me I will trully appreciate it. I heard about the Forex conference in Vegas but I am not sure about dates or locations. I heard you guys are going to be there and I would love to go. Can you confirm that you will be there and information about tickets, places, dates and location.
Thanks again
Beste wishes

klien

July 02, 2009 at 01:37 PM ET

I dont believe that the GBP/USD and EUR/USD will hit new YTD highs soon. I wrote a piece about this a few days ago in fact. However the move today was significant and could have "legs" but as I will write in my daily today, the long term trend is still down for the dollar.

http://www.fx360.com/commentary/kathy/1491/u-s-dollar-is-a-new-ytd-low-in-sight.aspx

As for the forex show, it is being held at Caesars Palace August 2-4 with our presentations on the 3rd and 4th

Qin

July 02, 2009 at 03:07 PM ET

Hey, Kathy
I am reading your article everyday, and really like it. As you mentioned that AUD and NZD have chance to fresh new high to against dollar. What is your view on USD/CAD by the end of the year?

Best regards
Qin

endy65

July 02, 2009 at 10:20 PM ET

I can be fool, but plz tell me the different between "Non-Farm Employment Change" and "Unemployment Rate", because in my speculation, I found that sometimes the change between them is diverse, for example: In June/05/09 the "Non-Farm Employment Change" is -345K (in compared with -504K on May) , it means that the number of people have job increased, however the "Unemployment Rate" is 9.4%, it means that the rate of people who lost their job increased too (in compared with 8.9% on May). In my opinion, I think that the fluctuation between "Non-Farm Employment Change" and "Unemployment Rate" must be in the same way, so that I have no idea of this diversification.

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About The Author

Kathy Lien began her FX trading career 10 years ago at J.P. Morgan Chase. After graduating New York University’s Leonard Stern School of Business at the age of 18, Kathy joined the bank's interbank FX trading desk and eventually moved to the cross markets proprietary trading desk. In the interbank market, her ability to create solid fundamental and technical analysis from the myriad of information on the market helped her trade forex spot and options. Her experience eventually led her to be chief strategist at Daily FX where she worked until she joined GFT in 2008.

With her knowledge of forex, as well as her experience trading other products, such as interest rate derivates, bonds, equities, and futures, Lien has built a reputation as an international currency analyst. She is frequently quoted on CNBC, Bloomberg, Fox Business and Reuters. Lien has also written for publications like Active Trader, Futures, and SFO magazine. She is the author of the newly updated Day Trading the Currency Market: Technical and Fundamental Strategies to Profit from Market Moves, and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Boris Schlossberg.

To buy Kathy’s newly updated Day Trading and Swing Trading the Currency Market: Technical and Fundamental Strategies to Profit from Market Moves, click here.