Rational FX: US unemployment rate drops by 0.4% [10/01/2011]

• The Euro cemented its downtrend as a result of Germany’s Retail Sales which came in massively less than previous and what analysts expected. As a result of the poor weather last month this could only be expected, however did nothing to remove the euro’s woes. Last month there was heavy snowfall and most shoppers stayed home, even ordering online was not an option as deliveries may have been jeopardized due to the road conditions in the run up to Christmas.
• Germany’s Trade Balance, whilst still positive showed a drop of 2.4 Billion Euro’s. As Exports and demand for Euro’s are linked, the fact that Germany exported less meant that less Euro’s were being bought, so failed to provide any support for the single currency.
• German Industrial Production, a key figure, based on the fact that Germany is the largest exporter in the Euro Zone came in negative, and dropped off more than expected and massively less than last month’s 3% increase, however the figure is still 12% up on the year. This just goes to show that orders are dropping off and goes hand in hand with the Trade Balance figure.
• Euro Zone GDP indicated growth of 0.3% in the third quarter and is up 1.9% on the year.  This was slightly less than expected on a quarterly basis and will leave the question open as to whether the 0.1% drop over the previous quarter was a result of the bad weather, as many businesses are still counting the cost of days where they did not have any staff, or even producing goods and services.
• The final piece of data from the Euro Zone was unemployment, which came in unchanged at 10.1% and just adds to the lackluster data we received from the 16 member states.
• The USA non Farm Payrolls figure was expected to show a massive improvement, and the market eagerly awaited this figure as we had an increase in ADP Private Payrolls showing increased employment in the Private Sector, however, the figure failed to impress with only 113,000 jobs added in the Private sector and 10,000 jobs lost to the public sector, a total of 103,000 jobs added in total. The Dollar then declined against its counterparts, especially against Sterling which jumped off its lows to reach an intraday high of 1.5580
• However, the US unemployment rate dropped by 0.4% and in Ben Bernanke’s testimony to congress stated that even though less jobs have been added, unemployment has fallen though not as much as required for the $600 Billion QE2 fund not to be used. Bernanke’s indicated that the economy is still fragile and weak, and it will take up-to 5 years for the unemployment level to normalise, even though 9.4% is still a 19 month low, showing unemployment at levels not seen since the credit crunch began.

Today’s Economic Data

• Halifax Bank of Scotland House Prices is expected to be released, this is data from HBOS’s own mortgage approvals, however, the last piece of economic data surrounding house prices showed a decline so traders’ may not be anticipating an increase.
• French Industrial Production is expected to show a turnaround from December, and based on the recent French riots over the retirement age, the French need to show a turnaround.
• We also have the US Treasury Currency Report which reports on the exchange rate policies of its trading partners, most importantly China.