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August 7, 2020

USD Rallies. Are We Misinterpreting US Jobs Data?

Frank Cabibi

At 8:30 am EST, the Bureau of Labor Statistics released US unemployment rate and the number of jobs added in the month of July. The results were better-than-expected, but was it good news?

https://www.bls.gov/charts/employment-situation/civilian-unemployment-rate.htm

Total unemployment rate came down to 10.2% after economists predicted a rate of 10.5%. The number of jobs expected to increase this month were around 1.6 million, and reports came out that around 1.8 million were added.

This could be taken two ways:
Investors see that the economy is slowly recovering, as recoveries don't happen immediately. At least we are starting to see some improvement.

The other way could be taken like this: The amount of growth we saw in the last two months provided much more promising numbers that it makes this month's report look like a joke.

In the month of May, the US was able to gain 2.5 million individuals to the payroll. June gave us 4.8 million says Washington Post. Two months of progress started looking promising, but July gave us a number less than May and June. With 1.8 million more employed shows that we have seen a slow-down in economic progress.

GBPUSD 4H Chart

During the market's dip this morning, we saw some movement on major pairs like GBP/USD and EUR/USD to the downside. Starting in early afternoon, the stock market began to recover, and those pairs followed.

We started seeing some decoupling of certain pairs from the market, but today's behavior did not reflect that.

Although unemployment rate has come down to 10.2% from 14%, there are still many concerns over how long it will take to reach a full recovery. The US has a long way to go from the decent 3.5% unemployment we saw in April. If not for the Fed, US markets would be down well below highs in late February. Washington Post also added that the Congressional Budget Office mentioned that the US will not see a full recovery for another 10 years. If that does not provide gloomy sentiment for stock investors, I don't know what does.

What to look out for

Last month has definitely showed that the US is not doing as great as they thought. With this earnings week coming to an end and this month's jobs data out, it's time to do some forward thinking. Because the market always looks to the future, next month's results should be considered. Any type of good news tends to be more effective than bad news. Jim Cramer, on CNBC, recently talked about how the market can be stupidly bullish sometimes, and the latest rally came out of nowhere. If the number of jobs increase by even a little bit for August, that's more than enough reason for retail traders and big banks to invest.

The US30 seems to have entered an area of consolidation between 27184 and 27625. This area is something to watch as lawmakers continue to delay new stimulus measures. Our overall sentiment on US markets is still bearish, but being bearish and calling bearish moves are two very different things. In other words, knowing that the market is due for a correction is different from calling it. The market is definitely overbought, but the question is how overbought? We will be looking to a break in that consolidation zone to the downside. If price comes up to that top at 27625, we will look for a short sell limit as well.


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Disclaimer:

Please note that this email is my personal opinion only. I am not a licensed financial advisor, and any information shared or discussed is not to be construed as investment advice. Trading and investing involves a degree of risk, and is not suitable to all investors. Please consult with your financial advisor before making any sort of investment decisions.

Featured Pic: https://www.kbic.com/blog/healthcare-finance/files/2016/11/Job-Hunting-for-Thanksgiving-4-Tips-to-Bag-the-Quarry.jpg

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