FX Update: Tepid US payrolls growth a relief for USD bears
Summary: Yesterday, the US dollar perked up far more sharply than did Fed rate expectations on the release of strong US data, perhaps as the market wanted a look at the official May jobs report today before reacting. With Nonfarm payrolls growing a bit more slowly than expected, the USD is reversing back lower on reduced odds that the Fed will need to shift its guidance at the June FOMC meeting.
FX Trading focus: USD bears find encouragement in softer than expected NFPs.
Yesterday’s trio of strong US data releases – a sub-400k weekly initial jobless claims, an eye-popping +978k May ADP private payrolls change and a new strongest-ever May ISM Services survey (with no concerning drop in the employment sub-index) – boosted the US dollar sharply, even if the move in US yields was rather modest. In part, the restraint in rate expectations reactions made sense as traders likely wanted a look at today’s official May nonfarm payrolls change data before reacting more strongly. That number was a tepid one at 559k vs. over 650k expected (net revisions of the prior two months at +27k), which doesn’t indicate anything approaching the huge growth in the ADP numbers and thus will leave many traders comfortable with the idea that the Fed will not need to get more aggressive at the June FOMC meeting on signaling a tapering of asset purchases. Yes, in a historical perspective, +559k of jobs growth is a huge one, but we are talking about the very heart of the re-opening months with many states eliminating access to federal benefits. We’re probably only a few months from the inevitable huge slowdown in the payrolls growth.
I am writing this in the minutes immediately after the jobs data release, so I won’t try to speculate on whether the knee-jerk reaction has it right as the USD was sent sharply, if rather modestly, lower. I’m not sure we will see much drama in USD downside, but a weak close does point the needle lower rather than higher for the US dollar. Traders are still going to be wary with next Thursday’s CPI release remaining ahead of the June 16 FOMC meeting. As well, the Average Hourly Earnings rise in May could get lost in the shuffle but shouldn’t: year-on-year data can be confusing when the comparison is with the pandemic breakout panic phase last year – but the last two months’ data have shown some pretty staggering month-on-month gains of +0.7% in April and now 0.5% in May.
Chart: AUDUSD
The USD rallied broadly yesterday, and one of the more interesting USD pairs was AUDUSD, which finally punched out of the very constricted range of the last many weeks in its move well below 0.7700 ahead of today’s US May jobs report. But…every directional move of late has petered out almost immediately and yesterday’s sell-off may see yet another quick reversal if the pair closes back well above 0.7700 today – suggesting that weak longs merely got shaken out yesterday and that this somewhat tepid payrolls data will leave the Fed happy to maintain course and not over-do any taper talk at the upcoming June FOMC meeting. The trouble tactically, however, for anyone look for a more profound move higher is that traders may also wait to see if the Fed delivers the all-clear on June 16 before trading with conviction on the long side.
John Hardy
Head of FX Strategy
Disclaimer
The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.
FX Trading focus: USD bears find encouragement in softer than expected NFPs.
Yesterday’s trio of strong US data releases – a sub-400k weekly initial jobless claims, an eye-popping +978k May ADP private payrolls change and a new strongest-ever May ISM Services survey (with no concerning drop in the employment sub-index) – boosted the US dollar sharply, even if the move in US yields was rather modest. In part, the restraint in rate expectations reactions made sense as traders likely wanted a look at today’s official May nonfarm payrolls change data before reacting more strongly. That number was a tepid one at 559k vs. over 650k expected (net revisions of the prior two months at +27k), which doesn’t indicate anything approaching the huge growth in the ADP numbers and thus will leave many traders comfortable with the idea that the Fed will not need to get more aggressive at the June FOMC meeting on signaling a tapering of asset purchases. Yes, in a historical perspective, +559k of jobs growth is a huge one, but we are talking about the very heart of the re-opening months with many states eliminating access to federal benefits. We’re probably only a few months from the inevitable huge slowdown in the payrolls growth.
I am writing this in the minutes immediately after the jobs data release, so I won’t try to speculate on whether the knee-jerk reaction has it right as the USD was sent sharply, if rather modestly, lower. I’m not sure we will see much drama in USD downside, but a weak close does point the needle lower rather than higher for the US dollar. Traders are still going to be wary with next Thursday’s CPI release remaining ahead of the June 16 FOMC meeting. As well, the Average Hourly Earnings rise in May could get lost in the shuffle but shouldn’t: year-on-year data can be confusing when the comparison is with the pandemic breakout panic phase last year – but the last two months’ data have shown some pretty staggering month-on-month gains of +0.7% in April and now 0.5% in May.
Chart: AUDUSD
The USD rallied broadly yesterday, and one of the more interesting USD pairs was AUDUSD, which finally punched out of the very constricted range of the last many weeks in its move well below 0.7700 ahead of today’s US May jobs report. But…every directional move of late has petered out almost immediately and yesterday’s sell-off may see yet another quick reversal if the pair closes back well above 0.7700 today – suggesting that weak longs merely got shaken out yesterday and that this somewhat tepid payrolls data will leave the Fed happy to maintain course and not over-do any taper talk at the upcoming June FOMC meeting. The trouble tactically, however, for anyone look for a more profound move higher is that traders may also wait to see if the Fed delivers the all-clear on June 16 before trading with conviction on the long side.
John Hardy
Head of FX Strategy
Disclaimer
The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.
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