Summary:

• NFP 148k vs 190k exp and 252k prior
• Average earnings rise to +0.3% M/M
• USD falls immediately after the release. Will it break lower?

The eagerly anticipated NFP report has been released with a sizable drop in the headline reading causing some disappointment and the immediate reaction seeing the US dollar fall whilst Gold and the US500 popped higher. However, within half an hour this weakness had subsided and the US dollar is higher on the day at the time of writing.  

The headline Non-farm employment change for December seems to have caused most of the move with a print of 148k well below the 190k expected. Market expectations may have been even higher than this given yesterday’s stellar ADP print of 250k and against this backdrop it is clear that this could be seen to be a disappointment. However, it should be noted that there was a fair size upwards revision to the prior reading of 228k which now stands corrected at 252k. These extra 24k jobs would make this month’s print a more respectable 172k and not be far from the consensus forecast.  

 

 There was a stark difference in the ADP and NFP numbers for December with the former smashing expectations and the latter missing. Source: XTB Macrobond

Given that the unemployment rate remains at historically low levels (4.1% as expected in this report) it may be wise to overlook the headline reading and focus more on wages as they can be seen to be more closely linked to inflation – Let’s not forget that a “worrying lack of inflation” has been cited by several Fed members and should it persist it may lead to a less aggressive pace of tightening.

 Wages have been fairly closely correlated with inflation (as measured by core CPI) in recent years. There has been a large disconnect in the past year however. Source: XTB Macrobond

Average wages in fact picked up in this report, rising to +0.3% M/M compared to +0.2% previously. In Y/Y terms they matched forecasts  at 2.5% although the previous reading was revised slightly lower to 2.4%.

 The market reaction to the release has been particularly interesting in the EURUSD with the pair first surging higher, seemingly on the headline miss, before reversing to trade at its lowest level of the day. Source: xStation

On longer timeframes the mini-reversal just witnessed may be of even more significance given the pairs inability to take out prior resistance at 1.2092. Whilst the market remains below 1.2092 a possible double top may be in play and there is now a chance that the market will correct lower. Also remember the current level of positioning in the Euro which we highlighted earlier this week. This could see any sell-off exacerbated should the longs decide to exit their position. 

 Despite the headline miss the longs failed to break prior resistance at 1.2092. Bears may now have an opportunity to push the market lower. Source: xStation