DXY falls after poor US employment figures

266,000 jobs were created in the United States in April instead of the one million expected by economists! The employment figures published this Friday across the Atlantic were a huge surprise, causing the dollar and US sovereign interest rates to fall.

On the foreign exchange market, the dollar index dropped 0.73% to 90.22 points, returning to its lowest level since the end of February, against a basket of 6 reference currencies (euro, Swiss franc, pound sterling, Canadian dollar, yen, and Swedish crown). Conversely, the euro gained 0.81% against the greenback to $1.2153 in New York interbank trading.

The greenback was undermined by disappointing U.S. jobs data, which suggested the economic recovery is uneven and not quite as strong as hoped, and that the Federal Reserve will not reduce its support for the markets for an extended period.

Job creation in the United States was therefore disappointing in April: 266,000 jobs were created last month, compared to 770,000 in March, and very far from the million expected. The unemployment rate even rose slightly to 6.1% from 6% in March, compared to 5.8% expected by economists. In other bad news, the number of new jobs created in February and March was revised downwards by 78,000 in both months.

“This is a big surprise,” said Matt Maley, director of market strategy at Miller Tabak & Co, “It's going to throw a big wrench in the big rotation we've seen recently. The drop in the U.S. 10-year yield will hurt banks and help tech. It should also cause some problems for commodities, which have rallied very strongly in anticipation of higher inflation.”

Minneapolis Fed boss Neel Kashkari said that the employment numbers show that the U.S. economy is still far from full employment. He added that he has “zero sympathies” for Wall Street's criticism of the Fed's massive support, while millions of Americans are still out of work.

Despite the solid recovery of growth across the Atlantic, about 8.5 million of the approximately 22 million jobs destroyed last year by the coronavirus crisis have not yet been recreated, while full employment is one of the main mandates of the Fed, with annual inflation of about 2%.

U.S. Treasury Secretary Janet Yellen also stressed that these figures show how “the road to full recovery of the U.S. economy is still long”. However, she expressed confidence that “the economy will be strong and prosperous this year and in 2022”.

On the bond markets, rates were very volatile after the announcement of the employment figures. They initially fell before recovering. The yield on the 10-year U.S. T-Bond fell to 1.47% after the announcement of the employment figures (compared to 1.57% on Thursday evening) before returning to 1.57%. The rate of the “30 years” fell to 2.15% (against 2.24% Thursday night) before rising to 2.27%.

From a technical perspective, the outlook on the DXY is mixed. The index managed to hold firm above its critical support level of 90 after having crashed below its long-term oblique on Friday. Should the dollar continue to lose ground at the start of the week, the next point of interest will be the 89.2 level last seen in January.

(Chart Source: Tradingview 09.05.2021)

On the flip side, a bullish rebound could see the DXY move closer to the 0.786 Fibonacci retracement level around 90.50. Traders may play off the support recovery pattern and enter long positions at this price point with stops around 89.95 level.

Support & Resistance Levels:

R3 92.570

R2 92.000

R1 91.300

S1 89.807

S2 89.200

S3 88.233

Disclaimer: This material has been created for information purposes only. All views expressed in this document are my own and do not necessarily represent the opinions of any entity.