US labor market sends mixed signals

[Ben Graham]

The US dollar came under brief pressure yesterday after data showed US companies created fewer jobs in January than expected, indicating a continued cooling of the labor market at the start of the year.

ADP Research reported on Wednesday that private sector employment rose by 22,000, a figure that was revised down from prior estimates and fell short of economists' forecasts.

The weak employment reading has raised concerns about the overall health of the US economy, given that the labor market only began to show signs of recovery late last year. The unexpected slowdown suggests that the Federal Reserve's elevated interest rate stance may be exerting a larger drag on economic activity.

Although there have been some signs of stabilization in recent months, the softer-than-expected private sector job gain indicates the labor market was still cooling in January. Several large firms have recently announced layoffs, including Dow Inc. and Amazon.com Inc., yet recent initial jobless claims data do not point to widespread large-scale dismissals.

Education and health care led job growth and accounted for much of the increase in payrolls. While hiring initially rebounded meaningfully overall, the pace of employment gains has slowed. The report also noted that the largest job losses since June occurred in professional and business services. Large firms reduced headcount, while businesses with fewer than 50 employees held staffing levels roughly steady.

The data showed workers who changed jobs received average wage increases of 6.4%, about 1.0 percentage point lower than the prior month. Those who remained in the same positions saw only modest wage gains.

As noted above, the report had a limited immediate impact on currency markets.

A technical outlook for EUR/USD suggests that buyers should consider reclaiming 1.1830. That would open the way to test 1.1870. From there, a move to 1.1910 is possible, although advancing beyond that without support from major players would be difficult. The extended target is 1.1950. On a decline, meaningful buying interest is likely around 1.1780. If buyers do not appear there, it would be prudent to wait for a new low at 1.1730 or to open long positions from 1.1700.

As for GBP/USD, buyers of the pound sterling should capture the nearest resistance at 1.3625. Only that will allow them to target 1.3655, above which a breakout would be challenging. The extended target is the area around 1.3690. If the pair falls, bears will try to seize control at 1.3595. If they succeed, a break of that range would deal a serious blow to bullish positions and could push GBP/USD down to 1.3565 with the potential to extend to 1.3540.

The material has been provided by InstaForex Company - www.instaforex.com