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USD: Boosted by Revisions to Payrolls, Still Waiting on G20 and Greek Vote

Last updated 11/4/2011 9:03 AM ET (GMT -5) 0 Comments - Add your comment

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Kathy Lien

Director of Currency Research, GFT

When it comes to assessing the impact of the non-farm payrolls report on the U.S. dollar and risk appetite, the most important question to ask is how the number plays into the central bank's monetary policy decision. Earlier this week, the Federal Reserve surprised the market by forgoing any changes in monetary policy but comments from Bernanke indicates that QE3 is not off the table. This morning's non-farm payrolls report ignited life into the U.S. dollar because it could be good enough to convince Federal Reserve officials to leave policy unchanged again in December. Non-farm payrolls rose 80k last month with private sector payrolls accounting for 104k jobs. The rest of the difference was made up by public sector job cuts. Although the headline number was good enough to mitigate any downside pressure on the market, the sharp upward revisions to the September and August reports was what made investors so enthusiastic. Revisions to the last 2 reports added 102k jobs, cementing the third quarter as a period of recovery for the labor market. The unemployment rate also ticked down to 9 percent from 9.1 percent. with the broader U-6 unemployment rate declining to 16.2 from 16.5 percent. Average hourly earnings rose 0.2 percent while average weekly hours held steady at 34.3. The manufacturing sector also added 5k jobs, which was the first month of positive job growth since July.

As usual, there has been quite a bit of volatility in the EUR/USD, AUD/USD and other risky currency pairs since the non-farm payrolls release. Although we are also encouraged by the jobs number, it is important to remember that even with today's relatively strong report, the U.S. labor market is far from out of the woods. It is estimated that the U.S. needs to add a minimum of 250k jobs per month to keep the unemployment rate steady. In the meantime, the volatility in the markets could also be caused by today's uncertainty. We are still waiting for the results of the no confidence vote in Greece this evening and a definitive answer to whether Papandreou will remain in office. Talks of IMF involvement in providing additional support to vulnerable economies appears to have broken down at the G20 meeting which isn't good news for the market because it implies that the G20's attempt to calm the investors have failed. With a number of questions remaining unanswered, put on your tin hats because it will be another busy trading day!

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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.