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Why Is Unemployment Rising After An Increase in Jobs?

7/2/2021

Confused on the latest US job numbers? You aren't alone. What was expected to be a better-than-expected report on both NFP and unemployment led to a chaotic morning in the markets. Non-farm employment change had a forecast of 725,000 new jobs added, and we actually saw an 850,000 jobs number growth for the month of June; keep in mind that this jump in the number of jobs added is the most we've seen since April of this year which was 916K. However, unemployment rate came in much higher than expected: May was 5.8%, June's forecast was 5.6%, June's actual was 5.9%...

NFP From January to June 2021

Here's what we are able to gather: As COVID cases reach the lowest number nationwide since March 2020, many companies/communities/employers are lifting certain restrictions that were previously implemented, and now people are going back to work. People were already doing this, but the month of June saw a huge spike in the job market population. So, now we have a huge pool of people searching for work. To be unemployed, by definition, is someone who has looked for work in the past 4 weeks (1 month) and couldn't find any. And this is what was probably happening in the US during the month of June. Companies that were desperate to hire grabbed a chunk of people from the new unemployment pool, however, it was not enough to outpace the number of new people looking for jobs. Therefore, we see an increase in both unemployment and jobs.

Our outlook

On the surface, higher unemployment looks bad for the economy, and it is, to be blunt. But because NFP reported a huge jump in jobs added, this means that a lot more people are going back to work. And a lot of people are back to searching for work at least which is better than living off unemployment benefits from an economic standpoint. Hundreds of thousands of people are going back to work which is a great sign as this month's unemployment rate is only 0.1% higher than May. Forecasts didn't account for the number of people trying to come back to work, so unemployment looks a lot worse than it actually is. To me, at least, this is a sign of growth and good news for USD.

Trade Setups

EURUSD

EURUSD looks bullish on the 1D chart as it looks like a technical bounce from support is going to happen. However, I don't know how long this pair will be bullish with current jobs data. If price does come up, it would have to break heavy resistance at 1.19853.

GBPUSD

GU bouncing off support right now after NFP news. Price will probably test that falling trend line on the 1D chart, and a break could lead to further upside to resistance around 1.40000.

USDCAD

UC on the 4H chart is interesting. Price is hitting support which is paired with a rising trend line. We also see a lower high on this timeframe, but could also see a higher low. That would put the pair in a wedge, but we'll have to see. Heavy resistance lies around the low 1.24700s.

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