Is the sell-off in the US dollar over? Probably not over the long term, but in the short term, it could very well be over if tomorrows non-farm payrolls release prints strongly. With only 51k jobs created in the month of September, anything short of a triple digit print will be perceived as very bearish for the US dollar. Analyst estimates are all over the place with the highest forecast being 180k and the lowest forecast at 72k; the median is 123k.
Of the 76 analysts surveyed by Bloomberg, 20 percent of them are calling for a double digit print. We believe that it would be quite disastrous to see anything less than 100k and judging from economic data has already been released, this downside surprise will probably not materialize. Jobless claims have been very low for the past month while the ADP payroll and Hudson employment indicies surprised to the upside. The only risk we see is from the real estate and housing market. Construction activity has been falling and we are sure that jobs related to that industry such as real estate agents and mortgage brokers are also suffering. Either way, with the US dollar at a very important support level, non-farm payrolls should help determine whether we will see a bit more of a bounce or further losses.
Payrolls Economic Release Outlook:
US Change in Nonfarm Payrolls (OCT) (13:30 GMT; 08:30 EDT)
(Change) (Rate)
Consensus: 123,000 4.6%
Previous: 51,000 4.6%
Outlook: The markets are eagerly awaiting the October reading of non-farm payrolls following the massive revisions made to the August figures. Payrolls are expected to rise 120K this month, but the focus may be on September revisions. The paltry 51K report last month did little to curb enthusiasm for the US economy, due to the Labor Departments claim that the full revision for the year in March could be an astounding 810K. Employment data released in the past few days bode well for an encouraging NFP report, as the ADP employment change jumped 128K from 78K in September while the employment component of ISM manufacturing tipped above the 50 boom/bust level to 50.8. The October labor market data may only be able to do so much for the US outlook, however, as the tepid 1.6% Q3 GDP report has created a highly bearish sentiment on the US economy.
Previous: Although the September reading of US non-farm payrolls came in much weaker than expected at 51K, news that the Labor Department upwardly revised Augusts figure by a whopping 188K offset any pessimism regarding the economy. The payroll data subsequently brought the unemployment rate to slip down to 4.6 percent from 4.7 percent the month prior. Additionally, the report showed that job growth from March 2005 March 2006 may have been about 41 percent higher than previously reported by 810K, marking the biggest revision since the Labor Department started benchmarking numbers in 1991. Meanwhile, average hourly earnings picked up 0.2 percent in September, bringing the annual rate to match a five year high of 4.0 percent. The labor market data led traders to believe that the Fed would stay on hold at 5 percent for into 2007, as bets were pared down to a 24 percent chance from 30 percent that the rates could be cut by the end of January.
