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The United States gained only 120K non-farm jobs in March. Early expectations stood on a gain of around 207K. This is a very big miss, below the worst official estimates.

The unemployment rate dropped to 8.2%, due to a drop in the participation rate. Expectations were for no change from last month’s initial report of 8.3%. The “real unemployment rate” dropped from 14.9% to 14.5%. Confused? So is the market, which is gradually leaning towards the bad NFP and sending the dollar a bit lower.

EUR/USD reacts with a strong rise from 1.3050 to 1.31. USD/JPY breaks lower. In the meantime, the big disappointment in the NFP wins over the small drop in the unemployment rate. Does the market see QE3 coming at the end of April?

See how to trade EUR/USD with this event.

Update: EUR/USD isn’t able to settle above 1.31, but holds on to the break above resistance at 1.3080.  The average hourly earnings rose by 0.2%, exactly as expected.

The drop in the unemployment rate is due to a drop in the participation rate, reversing a previous trend, although it was quite marginal: from 63.9% to 63.8%.

The private sector gained only 121K jobs, contrary to ADP’s figure of +209K. The public sector had little impact on the general picture.

The employment-to-population ratio dropped from 58.6% to 58.5%, erasing the 0.1% rise seen between January and February.

— Updates coming soon —

The “real unemployment rate”, also know as U-6, dropped to 14.9% in February, continuing the slide from 16% in October 2011. Update: U-6 dropped to 14.5% – a very nice drop. The non-seasonally adjusted figure dropped from a whopping 15.6% to 14.8%.

The headline unemployment rate U-3 dropped at an even higher rate at the non-seasonally adjusted level: from 8.7% to 8.4%. So, the warm weather wasn’t skewing the data after all?

Revisions were very minor this time: +13K in February and -9K from January –  almost untouched.

Background

Last month’s report was good on all accounts: it showed a healthy gain of 227K jobs, a steady unemployment rate of 8.3%, and also positive signs in second tier figures, often used by critics to undermine the credibility of the headline figures.:

The participation rate ticked higher, U-6 fell as aforementioned, and Bernanke’s closely eyed employment-to-population ratio also rose. The report published in March also contained revisions for January and December, which added another 61K to the total picture.

EUR/USD drifted lower in recent days due to two main reasons: the relatively hawkish meeting minutes from the FOMC and the worsening debt crisis in Spain.

The pair consolidated between two significant support and resistance lines before the publication: 1.30 and 1.3080. For more on the pair, see the euro to dollar forecast.