Non-farm payrolls dropped by -651K and USD/JPY and the EUR/USD rallied. What is behind the move?

The number of jobs lost in the US economy was 1,000 more than the 650k forecast, but compared to revision in January from -598k to -655k, non-farm payrolls actually rebounded! Here’s another score for the employment component of service sector ISM, which has an 82 percent positive correlation with non-farm payrolls.

With more than 4.2 million Americans out of work since Jan 2008 and the unemployment rate at a 25 year high of 8.1 percent, there is no question that the labor market is weak. This will translate into negative consumer spending and a further contraction in the US economy. Yet going to the NFP report, the whisper number was 1 MILLION. I have no clue where that rumor got started, but unless the January data was revised to +1 Million, there was minimal chance that non-farm payrolls would be that bad. So today’s price action post payrolls reflects the market’s relief that job losses did not hit 1 million. But don’t think that this is impossible because in September 1945, non-farm payrolls fell 1.96M.

In general, the payrolls report will probably not have a lasting impact on the US dollar because it represents the same old depressing story of massive job losses. Weakness in the US economy has been discounted and in many regards, traders are focusing on what’s in store for the next months. A lot of fiscal stimulus is in the pipelines which could help stimulate the US economy and if China comes through with a stimulus for their own country, it will benefit everyone.

Kathy Lien is Director of Currency Research at GFT, and runs KathyLien.com.