US Dollar Sells off after Weak Payrolls, but Reaction is Limited

Even though non-farm payrolls fell short of expectations, the sell-off in the US dollar has been limited. Why was there such odd price action in the greenback? Two reasons. The first is the lack of interest in trading today. London traders were focused on squaring up ahead of their 3 day weekend while Japanese and Chinese traders have been out all week. Volume has been thin and because of that, the EUR/USD has not found enough buyers to push it beyond 1.3600. The second is the implications of the data on interest rates. Although the Federal Reserve is not expected to raise interest rates next week, they are expected to adjust their FOMC statement. Unfortunately with gasoline prices above $3 a gallon and moving higher, Team Bernanke will probably continue to put inflation ahead of growth. They will look at the sharp drop in jobless claims yesterday and argue that the labor market will most likely improve in the months to come. However we will need to see jobless claims remain low for a few more months before we feel comfortable drawing the same conclusion. In the meantime, jobs are important and the lack of significant job growth last month should not be ignored. Not only did we see only 88k jobs created, but the unemployment rate increased from 4.4 to 4.5 percent as the household survey reported 468k job losses last month. Based upon the household survey, we have actually seen more job losses than growth since the beginning of the year, which does not paint a picture of a healthy labor market. People are also working and earning less as average hourly earnings and weekly hours drop. Taking this into context, we have the risk of a softer retail sales number next Friday. There are a number of important US economic data and central bank meetings next week so there will not be a shortage of market volatility. Based upon the weak US data and the prospects of another interest rate hike by the European Central bank, the Euro should extend its move once more traders return to the markets next week.

from: http://www.dailyfx.com/story/dailyfx_reports/daily_fundamentals/US_Dollar_Sells_off_after_1178315050130.html?engine=rss&keyword=article