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Why A Strong Jobs Report May Not Help U.S. Dollar

By Kathy LienForexMay 06, 2021 04:19PM ET
www.investing.com/analysis/why-a-strong-jobs-report-may-not-help-us-dollar-200578204
Why A Strong Jobs Report May Not Help U.S. Dollar
By Kathy Lien   |  May 06, 2021 04:19PM ET
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Non-farm payrolls are due for release on Friday, and the U.S. economy is expected to add nearly 1 million jobs. If the NFP numbers rise by 978,000, the current consensus forecast, it would be the strongest month for job growth since August of last year. The U.S. dollar should be trading higher on these lofty expectations, but instead is mostly lower.
 
There are a number of reasons for this lack of enthusiasm that could affect how the U.S. dollar reacts to NFPs on Friday. While there’s no doubt that the U.S. recovery gained momentum over the past month, with many businesses adding new workers, not all signs point to accelerated job growth. The employment component of the manufacturing sector, for example, slowed for the fifth straight month and there was no significant decline in jobless claims. While this won’t take much away from Friday’s jobs report, it reduces the possibility of a blowout number.
 
ISM services and ADP also fell short of expectations. Job growth in the services sector grew at a faster pace, but service sector activity slowed. All of this has U.S. dollar bulls worried that NFPs could fall short of expectations, especially since the whisper number is above 1 million. 
 
Arguments in favor of strong payrolls
 
1.    Rise in employment component of ISM services
2.    ADP rises by highest level since September 2020
3.    Challenger reports 22,900 layoffs down from 30,600
4.    Four-week moving average drops to lowest since March 28, 2020
5.    Consumer confidence rises to highest level since March 2020
6.    Sharp rise in University of Michigan Consumer Sentiment Index
 
Arguments in favor of weak payrolls
 
1.    No significant improvement in continuing claims
2.    Employment component of manufacturing ISM grows at slower pace for fifth straight month
 
For a broad-based post-NFP rally, we need to see non-farm payrolls above 1 million, upward revision to March numbers, an unemployment rate at 5.8% or better and positive average hourly earnings growth. All of the boxes need to be ticked for USD/JPY to resume its rise to 110 and EUR/USD to drop to 1.20, especially since good numbers are widely anticipated. 
 
Positioning is another reason why the U.S. dollar could fall if the jobs report is not good enough. Investors have had plenty of time to position for and take profits on the U.S. recovery trade. With everyone expecting strong job growth, there are few buyers on the sidelines. However, the primary reason why the U.S. dollar is unable to rally is because investors are turning their focus to the global recovery. Vaccinations in the euro area are gaining traction and it won’t be long before restrictions are eased. Even with much of the region on lockdown, retail sales growth beat expectations in March. The euro was the best performing currency on Thursday.
 
The Canadian dollar is also trading strongly ahead of that country's labor market release on Friday. CAD rose to its highest level against the greenback since September 2017. Unlike the U.S., Canada is expected to report job losses after some very good months of job growth. Economists underestimated job growth in Canada for the last two months and traders expect the same in April. There’s a good chance Canada shed jobs last month given the lockdown in major cities, but the decline may not be as large as the -175,000 forecast. Keep an on eye on USD/CAD and CAD/JPY, as they could see some big moves on Friday.
 
While the euro was the day’s best performing currency, sterling was the worst. GBP crashed after the Bank of England left interest rates and its QE target unchanged. It slowed the weekly pace of asset purchases and expressed confidence in the recovery, but traders were disappointed by its emphasis on keeping rates unchanged until signs of full capacity utilization and 2% inflation are clear. BoE economist Andrew Haldane voted to reduce asset purchases, but he is stepping down in June.
Why A Strong Jobs Report May Not Help U.S. Dollar
 

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Why A Strong Jobs Report May Not Help U.S. Dollar

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Comments (13)
Khalid Soomro
Khalid Soomro May 07, 2021 4:46PM ET
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so good
Umang Patil
Umang Patil May 07, 2021 6:27AM ET
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Kathy can u advise my dollar index will go up can
Tom Bruigom
Tom Bruigom May 07, 2021 5:27AM ET
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Printing money like crazy will never make a strong currency.
Ahsa Ahfh
Ahsa Ahfh May 06, 2021 11:54PM ET
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Lulo dlamini
Lulo May 06, 2021 10:24PM ET
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Kathy Lien.. Thanks for this piece. How ever your logic on a strong dollar is quite off.The Fed's mission when they stopped cutting rates in April 2020 was to make the US Dollar weak and an inverse to that action is to make the stock market rise.To cut it short, when things are really good America, the USD becomes weak and the US Stock market Rises The opposite is true. when things a bad in America, the dollar gets really strong and the US Stock market Comes down crashing.it's the whole basis that defines a Risk on and Risk off market. And this is only true with the US Dollar because it's a Reserve Currency.So.. if the job numbers come out very impressive, the stock market will go up and the USD will be weak. it will be Risk on.if the job numbers come out bad.. the stock market will likely be down and the USD will get strong.. that's risk off.I hope this helps.
Long Pham
Long Pham May 06, 2021 10:24PM ET
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I  can see that the US stock market and it's dollar have an inverse relationship, but can you elaborate why it is the way it is?
Chris Poulos
Chris Poulos May 06, 2021 9:20PM ET
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surely youve heard the phrase 'buy the rumor, sell the fact'. .. thats NFP in a nutshell. there may be a very short rally if the number is good but the markets are WAYYYY overbought and theres gonna be some selling soon. major players dont want to start a decline before they can get their large sell orders done so they will be selling into any rally ... like tomorrows NFP. at any rate the markets will be correcting sometime soon ... possible catalysts include a new covid variant or some other worsening of that debacle ... or any flare up with china. china is really pushing to make the south china sea theirs and theirs only. britain already has a naval presence in the area and the US and japan are very displeased. if things take a bad turn expect a crash. .. point is once things get going theyre gonna keep going. stay frosty out there ...
Felipe Daniel
Felipe Daniel May 06, 2021 7:58PM ET
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Dump dollars
Bilqis Faiha
Bilqis Faiha May 06, 2021 6:39PM ET
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you did it according to fact ..... not like other only using chart for finding where candles will go... thanks... you did great job 👍🏻👍🏻👍🏻
Shakeel Ahmad
Shakeel Ahmad May 06, 2021 6:30PM ET
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what about next move? sell or buy
Missfly Brand
Missfly Brand May 06, 2021 5:40PM ET
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Dollar is strong or weak
Tendai Muzika
Tendai Muzika May 06, 2021 5:40PM ET
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weak
Hamza Nawaz
Hamza Nawaz May 06, 2021 5:24PM ET
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good job.hard work
mehmet öztürk
mehmet öztürk May 06, 2021 4:48PM ET
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Great analysis ! Cheers...
Pattie Jabbaz
Pattie Jabbaz May 06, 2021 4:31PM ET
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Totally agree on your analysis, Tksss for your article!
Victor oladapo
Victor oladapo May 06, 2021 4:31PM ET
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good
 
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