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The US reported only 74K job gains in December, the lowest since October 2011. The unemployment rate provided a big surprise with 6.7%, but due to a drop of the participation rate to 62.8%. Some positive revisions partially help. The US was officially expected to report a gain of around 200K Non-Farm Payrolls in December. After some good figures, the real expectations were probably higher, around 230K. The unemployment rate was predicted to remain unchanged at 7%. The initial report for November showed a gain of 203K (before revisions). The decision has an impact on the upcoming FOMC meeting at the end of the month.

Before this important publication, the US dollar was on the rise, with EUR/USD sliding below 1.36, GBP/USD towards 1.64 and USD/JPY got closer to 105. The dollar looks at the NFP and not the unemployment rate and crashes, especially against the euro and the yen.

The Data (updated)

  • Non-Farm Payrolls:  74K  (November saw +203K before revisions)
  • Participation Rate: 62.8%  (63% last month )
  • Unemployment Rate:  6.7%,  7% expected  (last month 7% before revisions)
  • Revisions:  +38K, November upgraded from 203K to 241K  (+8K in November)
  • Private Sector NFP:  87K  (ADP showed an excellent gain of +238K jobs)..
  • Real Unemployment Rate (U-6):  13.1%  (previous: 13.2%m revised down from 13.2K).
  • Employment to population ratio:  58.6%  (previous: 58.6%)
  • Average Hourly Earnings:  0.1%,  +0.2% expected.
  • Average  workweek:  34.4  (Last month:  34.5 hours).

Market Reaction and Analysis

This is a very disappointing report: the setback in job gains wasn’t countered by revisions nor by the drop in the unemployment rate. The report produces uncertainty about the US economy and also weakens the credibility of the unemployment rate.

NFP Analysis: Uncertainty about the US economy and the unemployment rate

  • Before / After / Comments
  • EUR/USD 1.3590/ 1.3620 / The euro was hit by Draghi yesterday.
  • GBP/USD 1.6405 / 1.6450 / The pound suffered from a disappointing industrial production number earlier in the day.
  • USD/JPY 105 / 104.50 / The pair often reacts in the best manner to US releases.
  • AUD/USD 0.8900 / 0.8910 / The Aussie has been trading in range, but leans lower.
  • NZD/USD 0.8220 / 0.8230 / The kiwi showed some resilience lately.
  • USD/CAD 1.0880 / 1.0910 /  The C$ reached a 4 year low against the USD earlier in the week. The Canadian jobs report is released at the same time. The terrible Canadian jobs report sends the pair higher.
  • USD/CHF 0.9080/ 0.9050 / The franc suffered from the euro’s slide.

Background

Recent US data was mostly rosy and lifted expectations for a strong NFP. Q3 growth was upgraded to 4.1% and figures for Q4 look good. More importantly, the employment component of the ISM Non-Manufacturing PMI advanced nicely from November, implying more job growth in the biggest US sector: services. Also the aforementioned ADP lifted expectations.

There is a growing notion that the Fed will taper again in January, and this report is key to this decision: Bernanke’s last.

More: how to trade the NFP with EUR/USD.