Forexs Employment Friday

This morning’s trading action was not lacking for excitement as the major volatility ensued after the release of the Non Farm Payrolls report. The jobs added figure was disappointing, showing that we gained 103K jobs, vs. an expectation of a gain of 145K.

However, the unemployment rate came in better than expected, showing it decreased to 9.4% from 9.8%. Analysts were expecting the rate to come in at 9.7%. This number is very questionable as December is usually a tough month to gauge due to seasonal employment and the number of people leaving the workforce. My guess is that the latter had more to do with this figure as initial jobless claims have held fairly steady in the low 400K range, and the number of jobs added was lower.

But expect the media outlets to trumpet this number as signs of an improving employment picture, even though that might not be the case. Yet.

In Canada, the unemployment rate came in steady at 7.6% vs. an expectation of an increase of.1% to 7.7%. The net change in employment was an additional 22K jobs added, vs. an expectation of a gain of 20K. This math seems more palatable.

In the Euro zone, German retail sales figures and exports came in lower than expected, and GDP forecasts were revised slightly lower.

So this morning we have Dollar weakness, as the recently the Dollar has been trading more in-line with economic reality and not inversely on risk themes.

In the forex market:

Aussie (AUD): The Aussie is mostly higher though trading lower than the Kiwi and Loonie as Dollar weakness on the NFP report has increased demand.

Kiwi (NZD): The Kiwi is showing the biggest gains for the second day in a row as it appears as though some of the money leaving the Aussie is making its way to the Kiwi.

Loonie (CAD): The Loonie is the second best performer this morning as the employment report showed an improving and more realistic picture. More jobs than expected were added so the unemployment rate remained the same. Pretty simple concept, huh? (Click chart to enlarge)

usdcad010711.JPG

Euro (EUR): The temporary gains the Euro made against the Dollar on the NFP released were short-lived as the fundamental picture trumped the anti-Dollar sentiment. Austerity measures around the Euro zone have decreased demand for German exports, and Germany has been the major driver of economic stability in the region. If Germany falters, look out! (Click chart to enlarge)

eurusd010711.JPG

Pound (GBP): No news is good news for the Pound as Euro weakness is helping to divert money flows back to the Pound. While the economic problems in the UK may be as big (or bigger) than that of the EU, it is their ability to control their own currency that makes their currency more desirable.

Dollar (USD): The Dollar is lower (except for the Euro) as the NFP release was disappointing. I don’t think anyone believe the headline unemployment rate figure (down to 9.4%) as everyone knows it is more a function of temporary distortions related to the end of the year and the December holidays.

Yen (JPY): The Yen is mostly weaker though the Dollar has given back earlier gains against its safe-haven counterpart. I’m still trying to get a handle on what the actual driver of the Yen has been as early trading in it has been erratic to say the least. (Click chart to enlarge)

usdjpy010711.JPG

All is not lost in the US with regards to employment; however there is some mild disappointment that things aren’t improving at a more rapid pace. We can pretty much forget about the headline number for now as next month’s revisions and participation rate may move it back toward expected levels.

While the anticipation of a more friendly business climate has been around for some time, it does indeed take time for things to get moving. Fed Chairman Bernanke just got finished speaking and he says that economic growth should be better in 2011 than last year.

However, just because he says it, doesn’t make it so. Business has to rebound and employment has to increase to get things moving again. The challenge for the Fed for 2011 is how to stimulate growth while keeping inflation manageable.

Good luck with that, Ben!