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NFP Numbers Again Provide Trading Volatility

Once again the Non-Farm Payroll again satisfied the thrill seekers trading in the forex markets.  Non farm payrolls rose 151,000, far in excess of the anticipated 70,000 increase.  Further, the report stated that the Gov overestimated August and September job losses by 110,000.  This means there are ten straight months of private sector job growth.  Since the beginning of the recession, however, we lost 8.4 million jobs and have since recovered only 874,000. 

Unemployment remained unchanged at 9.6%, but examination of the details makes the positive headlines suspect.  Tyler Durden in a post on Zero Hedge reported:

"Labor Force Participation Rate Drops To 25 Year Low, At 64.5%
The inverse silver lining to today's jobs report that will be lost in the shuffle of what is perceived as a good NFP (despite consistent initial jobless claims of around 450K, which means that either there is a massive data error, or the rate of job creation has somehow surged) is that labor force participation has now dropped to the lowest rate it has been since 1984, at 64.5%. Assuming a reversion to the long-term average participation rate of 66%, means that the civilian labor force is in reality 157.4 million as opposed to the disclosed 153.9 million, a delta of 3.5 million currently unaccounted for. Maybe someone can ask the president during his imminent press conference what happened to the unemployed population, which would have been 18.3 if this labor force delta was incorporated, resulting in an unemployment rate of 11.6%."

There was some encouraging news from Main Street yesterday.  Last month October vehicle sales was up by 13.4%, the increase because the sales of light trucks increased by 23.5%.  According to Auto Nation Chairman and CEO Mike Jackson this is an early indicator the economy is improving.  He says:

"I've always said, when you want to know when this economy is going to turn, just watch the pickup sales. All those sales are small businesses and entrepreneurs, and when they see the prospect for better business, they're going to go out and finally buy a new pickup truck. So this is a key indicator of what's going on in the U.S. economy. This is small business America saying that the worst is over, I see opportunities in the future, I feel confident enough to go out and buy a new truck."

Is the dollar selling over?

So the economy is slowly showing recovery signs.  The anticipation and drama ahead of Bernanke's QEII is over.  Does this mean the USD is due for a sustained rally or is today just a relief rally, orpossible profit taking after a couple of really bad months?  Certainly there comes a price when all the bad news is discounted, but this is never known until well after the event.

Central bankers cannot be a happy lot with Bernanke's latest QEII caper.  Collectively they hold a little over 60% of their reserve currencies in US dollars, and the guy in charge of the US money supply, for claimed domestic stimulation purposes, has chosen to increase the USD supply by around a Trillion.  Like everything, a larger supply means a lower price.

But, is it possible that the forex markets collective abhorrence of the USD caused the value of the euro to become overvalued?  Today's euro economic news was a disappointment.  Retail sales came in -0.2% worse than the +0.3% expected and the German factory orders -4.0% were much less than the +o.5% anticipated.

Europe's debt remains a problem.  This week Russia removed Irish and Spanish debt from their buy list.  The price of credit default swaps in Greece, Ireland and Portugal has climbed as investors fear the worst.  What about China who bought large amounts of Greek and Irish paper.  With the higher euro versus the yuan (pegged to the USD) will they not be tempted to make some bond sales of their euro denominated inventory?

The euro may be vulnerable to further selling, but do we really want to buy the USD against it?  Perhaps selling the euro, and buying the Swiss franc, Europe's safe haven currency has some merit.  The pair has sold off from the recent high of 1.38, but there are some negative technical indicators suggesting lower levels.  Ideally a sell in the 1.36 area with a stop above 1.38 looks like a plan should the pair recovery next week.







Author: Ralph Shell - ForexRazor Analyst - Graduated from a small Ohio liberal arts college. Graduate studies in economics and history at Duke University. Ten years experience trading cash commodities in domestic and export markets. Former commodity analyst with Merrill Lynch in Chicago. Member of and floor trader at the Chicago Board of Trade for 18 years.



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