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NFP did surprise, completing a week of whipsaw data - softer than expected GDP report followed by very strong employment data. Despite the unemployment headlines being stronger it's probably not enough to change the tune that capital markets have been playing for some time. If anything, it confirms that the weather-related bounce back is happening. However, it's going to take some time to gauge the underlying performance of the economy - buying Yellen and company more time and with wage inflation so tame, there is no reason for them to change their "lower for longer" message.

How much of a problem does Yellen and her fellow associates at the Fed have? The third largest drop in the US unemployment rate ever recorded (+6.7% to +6.3%) has managed to push the belly of the US curve (5-year Tsy's to +1.77% and 10's to +2.66%). The press will have a field day with the unemployment rate at +6.3% tomorrow - however, more importantly the participation rate has dropped to 62.8% from 63.2% - this naturally offsets some of NFP's good.

The Fed will change tactics, just like the BoE, and shy away from the 6% UE level and focus on wage growth and what/if inflation pressure are building up. Until the fixed income guys can get the belly of the US curve much higher - at least get 10s to test the psychological +3% level - the forex trend remains your friend and expect to see more of the same contained trading ranges - disrupted by intermittent geopolitical concerns.

Digging deeper, the stronger than expected report (+288k vs. +216%) managed to provide broad based gains across many job classifications in April. The sharp drop in the UE rate is attributed to the labor force participation - something that the labor force secretary is happy to dismiss. Indeed, the household survey actually showed an outright decline in employment (-73k). The payroll data showed that construction was +32,000, manufacturing up 12,000, and retail trade up 35,000. Also, there was another sharp jump in the temp help category (+24,000).

Importantly, hours held up well after a weather-related recovery last month. The flat reading for average hourly earnings will hold down income growth in April and continues to signal a lack of any wage inflation - justifying the Fed's low rate stance.

A minor concern was the reported dip in the factory work week. It may suggest some softness in IP, hot on the heels of a couple of months of very strong gains.

Next week the market would prefer to contest the possibility of ECB officials most liking having to talk the EUR down from the psychological €1.4000 level, with the likelihood of sterling breaching £1.7000 and JPY infiltrating sub ¥102 territory when liquidity is back to near normal conditions - a late Friday in Europe with half manned desks does not seem like the ideal dealing scenario!

WEEK AHEAD

* AUD Reserve Bank of Australia Rate Decision

* JPY Bank of Japan meeting minutes

* AUD Employment Change

* GBP Bank of England Rate Decision

* EUR ECB Marginal Lending Facility

* EUR European Central Bank Rate Decision

* AUD RBA Statement on Monetary Policy

* CAD Unemployment Rate

Source: Week In FX Americas - After NFP How Far Is Yellen Behind The Curve?