Job market – the empty half of the glass – risk aversion takes over
Posted on November 6, 2009 by Yohay
Filed Under Forex News | 16 Comments
American unemployment rate is now at double digits – 10.2%. Obama’s warning of a rate above 10% comes true. This worse-than-expected release, together with Non-Farm Payrolls triggers fear of a slow recovery for a very extended period – “Safe haven” dollar and yen make gains in a choppy market.
The Non-Farm Payrolls disappointed only marginally, and fell by 190,000 jobs, almost at the early expectations of 173,000. The unemployment rate made the big disappointment. by rising from 9,8 to 10.2%. This big jump was significantly worse than the early expectations for a small rise to 9.9%.
The American job market is lagging behind other indicators. While third quarter GDP rose very nicely by 3.5% and exceeded expectations, the job market, as seen in today’s figures, as well as in the weekly unemployment claims, is far behind.
With yet another month of job losses, the growth figures fade away. Sustainable growth is impossible without an improvement in jobs.
Forex Trading after the NFP
The risk factor still dominates the markets – another bad US figure means another strength in the US dollar. The other currency that enjoys this is the Japanese Yen, which makes gains against the dollar. This makes the Yen crosses fall sharply.
The dollar is making gains against most currencies, with EUR/USD, GBP/USD falling. USD/CHF and USD/CAD are rising. The Canadian dollar also suffers from weak employment figures as well, making the road north open for USD/CAD.
Update: The choppy market has its mysterious ways, and the trend is now reversed, with the dollar weakening across the board. A “Friday effect” sure is possible later on.
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Thanks for your very informative commentary article above.
I’m very new to Forex trading (only about 6 months). In my naivete, I thought that if the actual NFP and other US economic stats due out this morning were as bad or worse than forecasted, the USD would plummet. Well, the actual economic stats WERE worse than forecasted, but the value of the USD skyrocketed! (Just as you said above: “…another bad US figure means another strength in the US dollar.”) Would you kindly explain why this happens?!? It’s very counter-intuitive and is a BIG reason why Forex trading is so unbelievably complex and difficult.
Thank you.
Thanks for commenting. This indeed counter-intuitive behavior is typical to the global crisis.
Today we saw a bad figure in the US. This means that the whole world is still in crisis. When there’s trouble, traders buy the so-called “safe-haven” currencies: the US dollar and the Japanese Yen. These are considered safer currencies in times of trouble.
This counter intuitive behavior doesn’t work for other countries. For example, bad GDP in Britain hurt the Pound, as you would expect.
I hope this answers your question.
Thanks, Yohay, for your prompt response and clear explanation. Yes, you did answer my question very well. And I don’t feel so stupid now that I know this is indeed a counter-intuitive reaction by traders. But I doubt that any of the 15.7 million unemployed people in the US or any of the UNCOUNTED millions more still think the USD is a “safe-haven currency”!
I sure agree that this is an absurd. I usually surround the words safe haven with quotation marks. With a huge debt on its back and a serious unemployment program, the US economy is not a safe haven…
Ninety minutes later, trading prices on most charts seem to have returned to where they were before today’s “Forex earthquake” at 8:30 NY time. I think extreme reactions to economic news “happen” on purpose, so traders create for themselves a larger arena to play in for awhile. Perfect timing with the many current all-time high/low price pairs, eh?
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