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Big disappointment: the US gained only 162K jobs in July. The unemployment rate fell to 7.4% but this comes on top of a drop in the participation rate to 63.4%. Official expectations stood on a gain of 184K Non-Farm Payrolls in July, after the US gained 195K jobs in June (before revisions, TBA). Upbeat ADP NFP, a drop in jobless claims and a employment component in the manufacturing sector’s ISM PMI all raised the bar, which was probably around 200K. The unemployment rate was expected to drop from 7.6% to 7.5%.

The US dollar was relatively strong towards the publication, with EUR/USD just above 1.32 and USD/JPY close to 100. Also other currencies were lower against the dollar than earlier in the week. EUR/USD is now shooting higher to 1.3266. USD/JPY is down to 99.30.  — updates coming —

The data

  • Non-Farm Payrolls:  +162K
  • Participation Rate: Down to 63.4%(63.5% last month)
  • Unemployment Rate:  down to 7.4% – lowest since December 2008    (last month 7.6% before revisions)
  • Revisions:  – -26K in total  June revised down from 195K to 176K and May was revised down from 195K to 188K.. Last month saw a nice addition of 70K..
  • Private Sector NFP:  TBA  (Last month:+200K. ADP showed a strong gain of 200K, above 180K expected.
  • Real Unemployment Rate (U-6):  down to 14.0%  (previous: 14.3%) – bad news here.
  • Employment to population ratio:  58.7%  (previous: 58.7%)
  • Average Hourly Earnings: -0.1%  (last month: +0.4%).
  • Average  workweek:  34.4  (Last month:  34.5 hours).

Market Reaction and Analysis

  • Dollar is lower – updated soon
  • EUR/USD dipped below 1.32 only to jump back to 1.3275 before stabilizing.
  • USD/JPY was already close to 100 but it fell to 99.24.
  • GBP/USD is back above 1.52, also enjoying the strong construction PMI.
  • USD/CAD is at 1.0347, after playing with the 1.04 line.
  • AUD/USD shows weakness: it is unable to climb back above 0.90.

See the NFP Shakedown Video for analysis of the event

Background

The one thing that is clear from the Fed’s communications (including the fresh FOMC Statement) is that tapering of QE depends on the data, and especially employment data. This is the most important report: the king of forex.

The drop of jobless claims to 326K, at the low end of the range, the strongest employment component in the ISM Manufacturing PMI both joined the strong ADP figure, which was highly correlated with last month’s good NFP. Before this publication, the average job gains in the past three months was 196K, very close to the 200K target which is thought to be needed for tapering of QE. Job gains need to be consistent of course.

Further reading:  5 Notes for Non-Farm Payrolls Trading