EUR/USD: Markets Under Pressure After Strong U.S. Labor
Updated
An earthquake in Turkey and rising U.S.-China tensions contributed to the unfavorable mood in the world markets on Monday morning.
The top platforms in Asia are dropping by 1.4%. The Japanese market stands out as an exception, rising 0.6%. Major U.S. index futures are continuing their downward trend from Friday, shedding as much as 0.4%. This morning, the nearest Brent crude oil futures are rising 0.2% and are currently trading slightly around $80 per barrel.
The non-farm payrolls from last Friday are the key point. In the first month of 2023, the U.S. economy added 517,000 new jobs, according to figures made public by the Labor Department. This is almost three times greater than the consensus prediction of analysts surveyed by Bloomberg and double the amount from December (260 thousand).
Unexpectedly, the jobless rate dropped from 3.5 percent in December to 3.4 percent in January. 3.6% growth was expected, according to economists.
In accordance with forecasts, the average hourly salary increased 0.3% in January over December. The annual growth rate of hourly wages was 4.4%. (+4.3% y/y) The data were better than expected. It is important to note that the December estimate was increased; salaries increased at a rate of 4.8% y/y in December 2022 rather than the previously reported 4.6% y/y.
The report was undoubtedly credible. But given that January's results were biased by methodology, it seems we shouldn't pay too much heed to the exceptionally high employment growth numbers.
This month, the statistical office is changing a lot of things. However, the truth remains that following this jobs data, whatever concerns that some Fed policymakers may have had about the possibility of excessive monetary policy tightening should be significantly diminished.
The data from the report would have appeared considerably more persuasive if they had been available an hour before Jerome Powell's press conference on February 1 (the Fed increased the rate by 25 basis points to 4,5-4,75%). Powell expressed his opinion that the job market was still hot and imbalanced during the news conference on Wednesday.
And so we see: rather than the Fed attempting to calm pricing pressures by hiking rates, the larger picture suggests that the current situation of the labor market is in fact accelerating inflation rather than calming it down.
Regarding estimates from the money market, a 25bp rate increase in March is currently implied by the federal funds rate futures market 93% of the time (82% a day ago). A rate increase in the same range in May is 60% more likely than it was yesterday (22%). The likelihood of a 25 basis point rate drop by year's end is still being calculated by the swap market.
According to the current set of macrodata, the Fed has good justification for raising the rate in March by 0.25 percent to 5%. Let's just say that the market's steadfast denial of the Fed's warning that the rate could increase above 5% this year no longer appears to be a bluff on the regulator's side. The dollar is oversold, as indicated by the existence of strong technical signs earlier. Fundamental elements have now been added to them. Given the just released jobs statistics, the market's attitude toward hazardous assets appears to be excessively upbea
Technical Analysis:
Today it's presented a divergence on the H6 timeframe and the price seems to start a reversal.
Our indicator shows a Sell position in this lower timeframe.
The top platforms in Asia are dropping by 1.4%. The Japanese market stands out as an exception, rising 0.6%. Major U.S. index futures are continuing their downward trend from Friday, shedding as much as 0.4%. This morning, the nearest Brent crude oil futures are rising 0.2% and are currently trading slightly around $80 per barrel.
The non-farm payrolls from last Friday are the key point. In the first month of 2023, the U.S. economy added 517,000 new jobs, according to figures made public by the Labor Department. This is almost three times greater than the consensus prediction of analysts surveyed by Bloomberg and double the amount from December (260 thousand).
Unexpectedly, the jobless rate dropped from 3.5 percent in December to 3.4 percent in January. 3.6% growth was expected, according to economists.
In accordance with forecasts, the average hourly salary increased 0.3% in January over December. The annual growth rate of hourly wages was 4.4%. (+4.3% y/y) The data were better than expected. It is important to note that the December estimate was increased; salaries increased at a rate of 4.8% y/y in December 2022 rather than the previously reported 4.6% y/y.
The report was undoubtedly credible. But given that January's results were biased by methodology, it seems we shouldn't pay too much heed to the exceptionally high employment growth numbers.
This month, the statistical office is changing a lot of things. However, the truth remains that following this jobs data, whatever concerns that some Fed policymakers may have had about the possibility of excessive monetary policy tightening should be significantly diminished.
The data from the report would have appeared considerably more persuasive if they had been available an hour before Jerome Powell's press conference on February 1 (the Fed increased the rate by 25 basis points to 4,5-4,75%). Powell expressed his opinion that the job market was still hot and imbalanced during the news conference on Wednesday.
And so we see: rather than the Fed attempting to calm pricing pressures by hiking rates, the larger picture suggests that the current situation of the labor market is in fact accelerating inflation rather than calming it down.
Regarding estimates from the money market, a 25bp rate increase in March is currently implied by the federal funds rate futures market 93% of the time (82% a day ago). A rate increase in the same range in May is 60% more likely than it was yesterday (22%). The likelihood of a 25 basis point rate drop by year's end is still being calculated by the swap market.
According to the current set of macrodata, the Fed has good justification for raising the rate in March by 0.25 percent to 5%. Let's just say that the market's steadfast denial of the Fed's warning that the rate could increase above 5% this year no longer appears to be a bluff on the regulator's side. The dollar is oversold, as indicated by the existence of strong technical signs earlier. Fundamental elements have now been added to them. Given the just released jobs statistics, the market's attitude toward hazardous assets appears to be excessively upbea
Technical Analysis:
Today it's presented a divergence on the H6 timeframe and the price seems to start a reversal.
Our indicator shows a Sell position in this lower timeframe.
Note
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