US jobs report strong, but dollar reaction could be mixed

John Hardy

Head of FX Strategy
John Hardy joined Saxo Bank in 2002 and has been Head of FX Strategy since October 2007. He focuses on delivering strategies and analyses in the currency market as defined by fundamentals, changes in macroeconomic themes, and technical developments.

The US jobs report was strong on all fronts. The payrolls growth was +223,000 versus less than 200,000 expected and the net revisions to the prior two months’ data was in at +15,000. Most importantly, on the average hourly earnings front, earnings bumped +0.3% higher month-on-month versus +0.2% expected and a disappointing +0.1% in April and this took the year-on-year figure to +2.7% vs. 2.6% expected.

This should have the market more fully pricing back in that June 13 Federal Open Market Committee rate hike that was beginning to look like slightly less of a sure thing recently after the recent EU sovereign debt flash crash and some adjustment in the latest Fed language on how it intends to react “symmetrically” to inflation now that the 2% inflation target is coming into view.

The immediate question for traders is what this means for the dollar after several gear shifts recently. For USDJPY, it is positive if rate anticipation heads back higher and especially if the recent reversal in long US rates has proven a false one (the 10-year benchmark, currently at 2.91%, needs to get back above 3.0% and higher in a hurry to indicate this can happen, otherwise, we don’t expect much from USDJPY and see 110.00-25 as the key pivot/resistance area).

Elsewhere, USD support may be a bit sluggish if risk appetite improves and the market starts to pick up interest in pricing rate hike anticipation higher elsewhere as the Fed is seen on a gradual hiking course and set to indicate a desire for more flexibility at the June 13 FOMC meeting (which will initially be read as dovish unless we see several months of more inflationary or strong US data).

Higher US Fed expectations and US yields together with risk off would be the most positive USD scenario. 

You can access both of our platforms from a single Saxo account.

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 is not intended to and does not change or expand on this. 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.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)