US Dollar: Jobless Claims Signal Potential for Weak Non-Farm Payrolls (Due Next Week)

In the foreign exchange market, there are times when politics can trump economics. Even though we did not have any breaking developments, the lack of meaningful US economic data turned the market’s focus today to the potential for political change. Foreign investors were never happy with the US’ presence in Iraq or with Iran’s progress on nuclear development. Although neither has been resolved by today’s news, the Senate’s approval of legislation that outlined a timetable for withdrawal and reports that Iran may be reaching agreeable points with the EU have given foreign exchange traders a reason to rally the US dollar.

The only economic data released today were jobless claims and the help wanted index. Both are minor reports but in the context of next week’s non-farm payrolls release, we cannot help but pay attention to them. The help wanted index slipped from 31 to 30 in the month of March while jobless claims dropped from 341k to 321k, leaving the 4 week moving average at 332k. This represents a significant jump from the 317k average that we saw last month as well as a return to February levels. Taking that information into context, we can estimate that non-farm payrolls will be much closer to the 113k reading that we saw in February than the 180k print in March. The current consensus estimate for April payrolls is 100k. However as long as we have triple digit job growth, the Federal Reserve is probably happy to continue sitting on their hands. What does this mean for the US dollar? That even if the dollar manages to recover more losses the EUR/USD could still have a shot at 1.40. Don’t forget that the European Central Bank and the Bank of England are still on track to raise interest rates next month. We have two weeks before the rate decision and there are a lot of data between now and then. In the meantime, our primary focus is tomorrow’s first quarter GDP report. Growth is expected to have slowed from 2.5 percent to 1.8 percent. We actually think the data could be a bit better since consumer spending, which accounts for 70 percent of GDP only worsened slightly in the first quarter. Retail sales in the first three months of the year averaged 0.6 percent, compared to average sales of 0.7 percent in the last three months of 2006.