Will Better Than Forecast Payrolls Propel Dollar Into The Light?

This is the big mover of the day: Today’s US non-farm payrolls were unexpectedly much better than expected. US payrolls data for April showed a decline of 20,000 jobs after a revised 81,000 decline in March. Although this marks the fourth consecutive of job losses in the US, it was much better than the 80,000 job decline expected by the majority of the market. In another encouraging sign, the unemployment rate also surprised, falling to 5% in April from 5.1% in March, versus an expected 5.2%. Sectors that lost jobs include factories and the construction industry which are still feeling the effects of a housing market slump. A total of 107,000 jobs were lost in these two sectors last month. What helped stem the overall decline of jobs was the sharp gain in hiring in the service industries. Insurance firms, banks, restaurants and retailers hired 90,000 people last month, the biggest amount so far this year, after an increase of 7,000 in March. What is worth noting is the hiring by financial firms, a move not seen since July last year, and is in itself a positive sign of a possible improvement in Wall Street despite recent massive writedowns due to the credit crunch.

Forex Trading

In the currency markets, the effect of NFP was clearly evident on the charts as the US dollar shot up against major currencies. The Euro fell by more than 100 pips against the US dollar in the 10 minutes after the data release, falling from 1.5470 to a so-far low of 1.5360, its lowest point since March 24 when it went to a low of 1.5340. The dollar also rallied against the Swiss franc, chalking up a gain of more than 100 pips, and is now encroaching into the 1.0600 region. USD/JPY broke above 105.00 to a 2-month high, and is heading towards 106.00. In pre-weekend trading, gains are likely to be restrained.

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