Payroll Data Smashes Estimates

Daily Analysis - 09/03/2015

US Unemployment Rate Dips After Payroll Gains Beat Forecasts

The US unemployment rate dropped more than forecast after a payroll figure that far exceeded analyst expectations. Although there were several disappointments in the data, the greenback rose on the release as traders push forward interest rate timelines.

Employment Exceeds Estimates

US nonfarm payrolls released on Friday beat estimates after substantially disappointing ADP figures and Challenger Job Cuts. The latest figure showed the US economy added 295,000 jobs in February despite poor weather conditions and rising layoffs in the energy sector. The majority of gains came from sectors that have lower salaries and wages which is why average hourly earnings failed to meet expectations of a 0.20% gain month over month. More concerning was the drop in the labor force participation rate which fell to new multi-decade lows. The dollar shrugged off this point, hitting new multi-year highs and causing a precipitous drop in gold prices which fell 2.7% following the announcement. Traders are meanwhile moving up forecasts for higher interest rates as the data remains supportive of medium-term hike.

Japanese GDP Disappoints

The latest GDP figures from Japan show that the Bank of Japan is losing its battle to orchestrate a turnaround for the languishing economy. Fourth quarter GDP data missed forecasts of 0.60% expansion, printing at 0.40% while the annualized figure printed at 1.50%, far below the 2.20% expected. Taking inflation into account, real growth for the economy remains elusive despite the high level of monetary accommodation from the Central Bank. Without plans to expand quantitative easing, the Bank of Japan is likely to fall short of targets. The Nikkei plummeted almost 1.00% on the announcement as concerns about the outlook materialize. USDJPY hit highs seen last in December as dollar momentum and yen weakness sent the pair climbing.

Eurogroup Dismisses Greek Proposals

After weeks of back and forth between the Greek Administration and Euro Area finance ministers, Greece is struggling to come up with the funding necessary to stave off a default. Important repayments to the IMF are due this week with limited options for funding the obligations. If Greece fails to unlock another €7 billion from an earlier bailout arrangement, probability is high that the nation will default on upcoming payments. Although the Government submitted reform proposals to the Euro Group and other creditors, they were dismissed with disappointment and frustration. The Euro has been sent lower on concerns that Greece will not find an imminent solution and the kickoff of the ECB’s quantitative easing program.

USDCAD Descending Triangle Technical Setup

The descending triangle pattern setting up in the USDCAD has a predominantly bearish bias despite recent strength in the US dollar. After spiking following a surprise interest rate cut from the Bank of Canada, the pair has since spent time consolidating between a downtrend line and support at 1.2380. Short positions should be initiated near the downtrend line with any move above the trendline regarded as an upside reversal. A breakout below support should be construed as a bearish move and will likely be accompanied by rising volatility and momentum to the downside. Trading the range in the consolidation is not suggested due to worsening risk-reward conditions.