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Non-farm Payrolls Avoids Worst Case Scenario, But Be Wary of Price Action

Last updated 4/3/2009 8:51 AM ET (GMT -5) 0 Comments - Add your comment

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Kathy Lien

Director of Currency Research, GFT

In any other environment, news that 663k people lost their jobs in a single month would be devastatingly.  However after watching jobs erode for fifteen consecutive months, investors were relieved that job losses did not top 700k in the month of March, which was the whisper number on the street.  This has triggered an impressive rally in risk with the U.S. dollar falling against higher yielding currencies as non-farm payrolls avoids the worst case scenario.

Before getting too excited however it is important to point out that even though the February data remained unrevised, January job losses were revised again from -681k to a whopping -741k.  So job losses did crack the 700k mark, just not this month.  The unemployment rate hit 8.5 percent, the highest level since November 1983.  Based upon average earnings and weekly hours, U.S. workers made less money and spent less time on the job in the month of March.  There is no question that with 5.133 million Americans out of work since January 2008, the labor market is in the Achilles heel of the U.S. economy.

Are Job Losses Leveling Off?

Now the 64 billion dollar question is whether job losses have leveled off.  With all of the stimulus packages underway, there is a good chance that major layoff announcements are behind us.  This does not mean that the unemployment rate will not continue to rise, because it will but the pace of job losses could slow.  In the 1980s, net job losses lasted for 17 consecutive months.  The current recession is worse and therefore we may not see positive job growth until the end of the year.  Nonetheless, payrolls have escaped the market's worst fears and therefore investors are responding positively. 

Be Wary of Price Action

There is only one word of caution that we have. As we wrote in our non-farm payrolls preview , based upon the way the EUR/USD traded after the non-farm payroll releases in Jan, Feb and March, the knee jerk rally in the U.S. dollar may not last.  

Employment Report Breakdown

Pimco's Gross on NFP

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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.