Jobs Report an Outlier The Fed Must Heed

A solid ISM non-manufacturing report underscored that non-farm payrolls was more likely skewed by one-time events. Yet the US dollar is broadly lower on the belief that the soft report will cement a cautionary approach at the Fed. The euro continues to press against the late-March highs.   Current Premium trades in progress include EURCAD and GBPAUD.

The March ISM non-manufacturing index was in-line with expectations at 56.5 in a slight decline from the February reading. It was far from the kind of dramatic drop in the jobs report. In the sub-indexes the employment component rose to 56.6 from 56.4.

Along with recent jobless claims data, the Markit surveys and other quickly delivered data, it shows that the economy remains steady. There have been other data points that agree with payrolls – like ADP – but markets are likely to believe that weather was the factor in February, not a turn in the economy.

Yet the Fed is forced to play it safe and that has left the US dollar vulnerable. Yellen made her preference for jobs data as the key liftoff indicator clear. The soft report is just a single data point but with inflation low, it adds a compelling argument for the Fed to wait.

EUR/USD rose another half-cent on Monday in the fourth day of gains. The pair is testing the late March highs that extend to 1.1051. A break and a close above may squeeze the crowded short position. 

Commitments of Traders

Speculative net futures trader positions as of the close on Tuesday. Net short denoted by - long by +. EUR -227K vs -221K prior (most bearish on record) JPY -24K vs -46K prior GBP -37K vs -39K prior AUD -24K vs -28K prior  CAD -30K vs -33K prior CHF +1K vs -4K prior