Top Story

NFP recap: Dollar dumped to 3-week lows as wages miss, unemployment rises

After President Trump spoiled “traders’ Christmas” last month with a now-infamous tweet implying that the May jobs report would be strong, market participants were happy to get back to their “normal” tradition of overanalyzing and excessively dissecting the volatile monthly jobs report at the moment of its release today.

As it turns out, there may have been a good reason why the president refrained from teasing the data this time around: while the headline number of jobs created did come in slightly higher than expectations at +213k vs. +195k expected, the secondary aspects of the report were mixed. On the bright side, revisions to previous two months’ reports added +37k jobs as the US labor market continues to maintain a pace of job creation closer to that of a post-recession recovery than one associated with a near-decade of uninterrupted economic growth.

That said, there were some negative, or at least mediocre, aspects of the report. First, and most prominently, average hourly earnings rose just 0.2% month-over-month (2.7% year-over-year), confounding economists who were expecting wage growth to accelerate with the unemployment rate at an historically low level.

Speaking of the unemployment rate, it ticked up 0.2% (nearly 30bps unrounded), though some will argue that it was a “good” rise in the unemployment rate because it was driven by a 0.2% rise in the labor force participation rate to 62.9%. In other words, the improving job market has pulled more citizens into the workforce in yet another sign that there is still “slack” in the labor market.

Market Reaction

After years of steady job creation, traders have shifted their focus from the headline job growth figure to average hourly earnings as the most important figure to watch. Viewed through that perspective, the market’s reaction is logical: the slight miss in wage growth makes it marginally less likely that the Fed will be able to hike interest rates aggressively in the coming quarters.

Accordingly, we’ve seen US stock indices bounce from their pre-market lows, though they’ve still opened in bearish territory. Meanwhile, US bond yields of all maturities are ticking lower. Most significantly, the US dollar index has fallen to a three-week low, breaking support from last month and confirming a potential “double top” pattern. As the chart below shows, key support for the greenback comes in around 93.20, a level that corresponds with ~1.1850 on EUR/USD.

DXY Daily

Source: TradingView, FOREX.com


Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

The markets are moving. Stop missing out.

Open an Account