Non-Farm Payrolls Disappoints, U.S. Unemployment Drops and Bernanke Testifies

ForexNewsNow | Published on January 7, 2011 at 7:01 pm

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NEW YORK (Forex News Now) – This morning, the U.S. Bureau of Labor Statistics reported that the U.S. economy had added 103K non farm jobs to U.S. payrolls for the month of December.

In addition, realtime forex news reported that the U.S. Unemployment Rate had fallen sharply to 9.4% from 9.8%, although this large drop was attributed to unemployed people feeling discouraged about seeking jobs.

The Non-Farm Payroll number — perhaps the most watched economic indicator for the U.S. Dollar — was expected to show an increase of 159K. The Unemployment Rate was considerably better than the 9.7% number expected.

Despite the somewhat disappointing NFP number for December, the previous numbers for November and October were both revised significantly higher. November’s number was revised from 39K to 71K, while the number for October was revised even more from 172K to 221K. The key NFP employment indicator has now been positive for the last three consecutive months.

Furthermore, the NFP consensus had been revised upward to 159K from 136K after Wednesday’s release of the ADP Non-Farm Employment Change number. The ADP number was notably positive, adding 297K new jobs for December and showing the highest reading since the number has been tracked starting in 2006.

Majors React to the U.S. Employment Report, Dollar Initially Lower, then Higher

After showing an initial negative knee-jerk reaction to the NFP headline, the U.S. Dollar then rose upon further consideration of the revisions, holding onto much of its gains against the other major currencies. As of this writing, the smoke has settled and trading volatility has dropped considerably, although the possibility exists of some position squaring ahead of the weekend.

A detailed intraday analysis shows that the Euro softened immediately before the NFP release to 1.2943, but then rallied when it came out to peak at the 1.3017 level a few minutes after the Employment Report was released. Sterling’s reaction to the NFP release was also to sell off slightly ahead of the number to 1.5453, but to then rally sharply to 1.5516 shortly after its release.

As usual, USD/JPY reacted inversely by rallying slightly to 83.65 ahead of the number, and then trading rapidly lower to 82.97 after the release. USD/CHF had a fairly typical whipsaw reaction, initially gapping down from 0.9649 to 0.9601 post release before then reversing to peak at 0.9690 a few minutes later.

Fed’s Bernanke Testifies

In other important fx trading news, Chairman Ben Bernanke of the U.S. Federal Reserve Bank testified today before the Senate Budget Committee. In his testimony, he noted that, “it could take four to five more years for the job market to normalize fully”, with a drop to 8% expected over the next two years in the Unemployment Rate.

Bernanke used this forecast to help justify the Fed’s recent $600B debt repurchase program that market analysts have dubbed QEII. On the brighter side, the Fed Chairman also said he expected the overall economic pace in the United States would be “moderately stronger” for the coming year, with the Fed seeing “increased evidence that a self-sustaining recovery” is in process.

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