Breaking News
0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Why A Strong Jobs Report May Not Help U.S. Dollar

By Kathy LienForexMay 06, 2021 16:19
ca.investing.com/analysis/why-a-strong-jobs-report-may-not-help-us-dollar-200465581
Why A Strong Jobs Report May Not Help U.S. Dollar
By Kathy Lien   |  May 06, 2021 16:19
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
Non-farm payrolls are due for release on Friday, and the U.S. economy is expected to add nearly 1 million jobs. If the NFP numbers rise by 978,000, the current consensus forecast, it would be the strongest month for job growth since August of last year. The U.S. dollar should be trading higher on these lofty expectations, but instead is mostly lower.
 
There are a number of reasons for this lack of enthusiasm that could affect how the U.S. dollar reacts to NFPs on Friday. While there’s no doubt that the U.S. recovery gained momentum over the past month, with many businesses adding new workers, not all signs point to accelerated job growth. The employment component of the manufacturing sector, for example, slowed for the fifth straight month and there was no significant decline in jobless claims. While this won’t take much away from Friday’s jobs report, it reduces the possibility of a blowout number.
 
ISM services and ADP also fell short of expectations. Job growth in the services sector grew at a faster pace, but service sector activity slowed. All of this has U.S. dollar bulls worried that NFPs could fall short of expectations, especially since the whisper number is above 1 million. 
 
Arguments in favor of strong payrolls
 
1.    Rise in employment component of ISM services
2.    ADP rises by highest level since September 2020
3.    Challenger reports 22,900 layoffs down from 30,600
4.    Four-week moving average drops to lowest since March 28, 2020
5.    Consumer confidence rises to highest level since March 2020
6.    Sharp rise in University of Michigan Consumer Sentiment Index
 
Arguments in favor of weak payrolls
 
1.    No significant improvement in continuing claims
2.    Employment component of manufacturing ISM grows at slower pace for fifth straight month
 
For a broad-based post-NFP rally, we need to see non-farm payrolls above 1 million, upward revision to March numbers, an unemployment rate at 5.8% or better and positive average hourly earnings growth. All of the boxes need to be ticked for USD/JPY to resume its rise to 110 and EUR/USD to drop to 1.20, especially since good numbers are widely anticipated. 
 
Positioning is another reason why the U.S. dollar could fall if the jobs report is not good enough. Investors have had plenty of time to position for and take profits on the U.S. recovery trade. With everyone expecting strong job growth, there are few buyers on the sidelines. However, the primary reason why the U.S. dollar is unable to rally is because investors are turning their focus to the global recovery. Vaccinations in the euro area are gaining traction and it won’t be long before restrictions are eased. Even with much of the region on lockdown, retail sales growth beat expectations in March. The euro was the best performing currency on Thursday.
 
The Canadian dollar is also trading strongly ahead of that country's labor market release on Friday. CAD rose to its highest level against the greenback since September 2017. Unlike the U.S., Canada is expected to report job losses after some very good months of job growth. Economists underestimated job growth in Canada for the last two months and traders expect the same in April. There’s a good chance Canada shed jobs last month given the lockdown in major cities, but the decline may not be as large as the -175,000 forecast. Keep an on eye on USD/CAD and CAD/JPY, as they could see some big moves on Friday.
 
While the euro was the day’s best performing currency, sterling was the worst. GBP crashed after the Bank of England left interest rates and its QE target unchanged. It slowed the weekly pace of asset purchases and expressed confidence in the recovery, but traders were disappointed by its emphasis on keeping rates unchanged until signs of full capacity utilization and 2% inflation are clear. BoE economist Andrew Haldane voted to reduce asset purchases, but he is stepping down in June.
Why A Strong Jobs Report May Not Help U.S. Dollar
 

Related Articles

Blake Morrow
Chart Of The Day: CAD/JPY By Blake Morrow - Apr 07, 2021

CAD/JPY posted a false breakout last week above the 88.00 level. At that time, the divergent and overbought RSI suggested the pair would pullback. As we drop back towards the 61.8%...

Why A Strong Jobs Report May Not Help U.S. Dollar

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email