Monday, March 28, 2011

The Advisor Weblog

The Advisor Weblog

Dollar and Payrolls: what´s next

Posted: 28 Mar 2011 05:50 AM PDT

Since 2007, the US has suffered the worst crisis over a century, being the most affected, housing and employment sectors. Unemployment rate, back in the mid 2007 was of around 4.5%; since then, the uptrend continued to hit a multi-decade high of 10.2% in October 2009. Unemployment rate has been steady above 9.5%, surprisingly improving this year, falling to 8.9% for past February.


Ahead of March numbers to be release next Friday, market expectations are quite similar to previous month reading: market expects an unemployment rate of 8.9% while the economy is expected to add around 190K new jobs, same as previous month. An educated guess will say forecasters are not really sure what to expect right now; besides, and considering the fact QE life depends on employment situation, and due to recent hawkish comments from FED Plosser, and Bullard, the whole US/dollar situation could be strongly affected with this data.

Is well known QE depends on employment situation: a strong improvement in the numbers could change dollar long term bearish trend. Maybe the reaction won't be immediate. Yet if we add to the equation, more FED members comments following recent Plosser and Bullard ones, dollar could well be at the doors of a long term bullish momentum across the board; trigger will be an anticipated end of QE2 or even a not so at sight rate hike.

Also, with commodities near record highs and the ECB planning a new facility plan to give troubled euro zone banks liquidity, there is a good chance market will react favoring the greenback rather than following latest risk sentiment equation.

Again, this will depend on better than expected numbers, that is an unemployment rate below 8.9% and @ 200K new jobs added.

The other less probable picture, a quite negative reading with unemployment rate above 9.0% and less than 150K new jobs, should on contrary send investors back to sell the dollar, buy commodities, and bet on an euro zone rate hike. The FED will then need to do more than just jawboning, to convince market participants the economy has already gear up.
Posted by at 5:48 PM

No comments:

Post a Comment

Subscribe to: Post Comments (Atom)