Gleanings from the US labor market report

Written on 08/07/2023
Team UCapital 24

"Forrest Gump says life is like a box of chocolates, because you never know what you are gonna get. I think the US labor market report is also like a box of chocolates, because there is something for everyone," Commerzbank Head of FX and Commodity Research, Ulrich Leuchtmann, said.

The USD bears were able to refer to the fact that the NFP, the number of new jobs outside farming, was much lower than the vast majority of analysts had expected and that the previous month’s result also had to be revised downwards.

And the USD bulls were able to state that major surprises in the NFP data are not unusual and that 187k new jobs were quite good going, that the unemployment rate recorded a surprise m-o-m fall and that average hourly earnings rose a little more significantly than expected.

"Anyone who thinks that the USD positive arguments were not only more numerous but also more convincing would have been in the minority on the FX market on Friday. The dollar eased quite notably following the publication of the data."

"I think the market reaction was a good example of how you cannot simply compare the data with the analysts’ projections. It also depends on how much hope is factored into USD prices before the release."

Whichever way we look at it, EUR/USD had traded in the lower 1.09 area prior to the publication, DXY (the ICE’s USD index) above 102.50. Both levels were close to the extremes of the previous week. It therefore cannot come as a surprise that the USD negative arguments weighed more heavily and dominated – despite the doubtlessly good arguments pointing in the other direction.

"One could also put it like this: prior to the publication of the data no FX trader knew whether all FX traders would consider EUR/USD in the lower 1.09 area to be “fair” following the publication. The fact that on aggregate they didn’t, only emerged after the publication."