Dollar Loses Traction On Disappointing NFPs And Earnings Data

The dollar?s drive has hit a serious speed bump with Friday?s economic calendar. Just as the greenback started to edge beyond major resistance towards the end of the week, disappointing payrolls and wage inflation numbers ended the week-long fundamental build.

Since today?s event risk didn?t play out as the bullish trigger breakout traders were waiting for, many of the majors pulled back from major technical levels. Before the New York session, dollar bids helped carry EURUSD below 1.3550 - that is until the fundamental move drove the pair back up to 1.36. With the same feeling, USDCHF stalled below 1.2170 before the wave of dollar selling pushed it down to test 1.21 as new support. Perhaps the most appealing technical display came from the pound-based major which briefly slipped below 1.9850 before jumping 100 points back into its aging range. Finally, USDJPY was skipping off of resistance around 120.45 for much of the Asian session until the New York move drove spot to a test of former resistance/current support at 119.90.
Action in the currency market over the entire week was influenced by speculation surrounding today?s labor data. Like last week?s build into the first quarter GDP report, traders held back on placing big positions early after market-moving PCE and ISM manufacturing and services reports hit the wires. Under normal circumstances, these indicators could have forced breakouts on their own; but this was not the case with NFPs on the docket. However, after all the preparation, speculation and risk hedging, big breakout moves never materialized. The bullish pressure underlying the dollar was immediately deflated this morning when April nonfarm payrolls crossed the wires at 88,000. This was only moderately below economists? 100,000 consensus, but was largely in line with the market?s timelier, unofficial prediction. On a historical basis, this monthly payroll addition was the smallest since November 2004, though it is not far off from lows reported in previous months. Perhaps more concerning for those accustomed to steady, positive NFP prints was the downward revision to the previous two month?s reports. Over the past few years, the Labor Department has consistently revised previous figures higher. And, while April?s soft print could be the beginning of a down-turn in the long outperforming labor trend; such projections cannot be confirmed without a few more disappointments to substantiate it.
While the payrolls number certainly made its rounds this morning, its significance to the broader economic picture may be overshadowed by the component data from the labor report. In the first quarter, the US economy grew at a sluggish 1.3 percent annual pace, the slowest in four years. Employment factors in as the main pillar of domestic spending, which is the chief source of growth for the economy. On this front, though the jobless rate ticked higher to a 4.5 percent pace, just above five-year lows. From another angle, wage growth is also beginning to cool. Average hourly earnings grew 3.7 percent from the April of last year - the slowest pace of expansion in a year. This lends weight to the dip in PCE numbers released on Monday. All of this will be considered next week when the Fed deliberates on interest rates. With growth pulling back and inflation wavering, the consumer is looking more and more like the lynchpin for the next change in rates.
Though macro consumer trends were certainly a concern for the equities market, news of big deals and earnings kept the market on its bullish track. By 15:40 GMT, the S&P 500 was leading the benchmark indices with a 0.35 percent gain that extended the break of 1,500 to 1,507.59. At the same time, the NASDAQ Composite was trading 0.33 percent higher at 2,573.99 while the Dow rose 0.23 percent to 12,272.09. Looking down the most active lists, those stocks that were moving off of earnings news clearly took a back seat to a few big deals that the market had caught wind of. The first of the big deals for the day was the reported $15 billion offer from Thomson Financial to purchase Reuters. With the details still cloudy, Reuters shares were trading 25 percent higher on a $14.71 advance to $73.63. Though confirmation is not clear at this point, the media and market were also buzzing over the possible acquisition of Yahoo by Microsoft. Big Blue?s shares were off 1.6 percent at $30.48 as speculation reined, though Yahoo?s surged 18.5 to $33.38.
Though treasury yields were on the retreat after today?s employment numbers, the decline was not as bad as it could have been. The benchmark 10-year note was up 8/32nds at 99-28 with a yield quoted 3 basis points lower at 4.638 by 15:40 GMT. Thirty-year bonds advanced 16/32nds to 99-04 as yields fell back 3 basis points to 4.805.