Based on the the payroll headline figures for the month of September, a somewhat different reaction was seen in the markets instead of a broadly weaker US Dollar. While economists had anticipated a job growth of 80K, the greenback climbed above the 113.00 key resistance level versus Yen, albeit, the US economy lost ~40K jobs. A rather unusual reaction considering also the risks associated with the North Korean crisis and concerns surrounding the impact of hurricanes hit the US.

The US economy lost 95K (revised to -41K) jobs in September 2010, which marks a 7-Year record, and despite the divergence from the expectations back then was -96K growth compared to the recent -115K, Dollar fell 500bp to session’s end against Yen. Admitting market players were concerned during the release of the latest NFP numbers the headline was rapidly discounted on a 16-year (February 2001) record low Unemployment Rate and an upward revision in August’s NFP while the Average Hourly Earnings rose to its highest level since February 2016.

Furthermore, stronger than anticipated ISM Manufacturing and Non-Manufacturing data and Fed’s hawkish comments on monetary adjustments towards the end of fiscal 2017, a hike probability of which increased from 70% to 77%, helped Dollar shoot sharply past above 113.00.

With wage growth expanding, manufacturing, services and the retail sectors accelerating, a budget bill for fiscal year 2018 having been approved and the US Yields propelling above 2.33% economists believe October’s NFP could provide the necessary boost to the US Dollar in order to maintain a bullish spot above 114.00 versus Yen. This is supported by the increased confidence that payrolls are indeed going to be revised in the upcoming Friday November 3rd NFP.

September’s report showed an increase mainly in health care (+23K), transportation and warehousing (+22K), professional and business services (+13K) and financial activities (+10K), while employment in food and services fell the most (-105K) due to the recent hurricanes as many employees were off payrolls. The following table illustrates the Employment Change by Industry for September:

Despite hurricanes had a small impact on data collection from most areas in September compared to August – the current employment statistics were affected for Texas, Florida and other areas -, processing errors in estimates for women employees and production and nonsupervisory employees series in five smaller industries within financial activities, professional and business services, and leisure and hospitality were discovered.

US Change in Nonfarm Payrolls is at a current level of -33K, down from 169K last month and down from 249K one year ago. This is a change of -119.5% from last month and -113.3% from one year ago. The main reasons a weaker than expected headline was immediately discounted are:

  • Wage growth rose from 0.2% to 0.5% while economists anticipated a growth of 0.3%.
  • Unemployment Rate fell to a 16-Year low to 4.2%
  • Participation Rate also increased to 63.1%
  • August’s payroll was revised from 156K to 169K
  • Challenger Job cuts fell 4.4%

A closer look at those key five points…

1. Wage growth rose from 0.2% to 0.5%: Despite a consensus of 0.3% the average hourly earnings rose to 0.5%, significantly higher than the expectations and than Fed’s inflation target of 2.0%; Fed emphasises on the PCE as it covers a range of household spending and has the ability to reveal underlying inflation trends. US Average Hourly Earnings is at a current level of 26.55, up from 26.43 last month. This represents a monthly annualised growth rate of 5.45%, compared to a long-term average annualised growth rate of 2.45%. Median weekly earnings of full-time workers are $859 in the third quarter of 2017, $767 for women, $937 for men. This is 3.9% higher than a year ago.

2. Unemployment Rate fell to a 16-Year low: While the Unemployment Rate declined to 4.2% reaching a 16-Year low the Inflation Rate increased 2.2% YoY in September, albeit, missing the consensus figure of 2.3%. US Inflation Rate is at 2.23%, compared to 1.94% last month and 1.46% last year. This is lower than the long-term average of 3.26%. On the other hand, the US Unemployment Rate is at 4.20%, compared to 4.40% last month and 4.90% last year. This is lower than the long-term average of 5.80%. Since the relationship between Inflation and Unemployment is negative, demand for labor by employers exceeds supply – hence why wages rise (see chart below). According to BLS there was no discernible effect on the national unemployment rate caused by Hurricanes Irma and Harvey.

3. Participation Rate rose to 63.1%: The US Labor Force Participation Rate rose to 63.10% compared to 62.90% last month and 62.90% last year. This is higher than the long-term average of 62.88%. Most importantly, it supports the fall in Unemployment Rate as Unemployment Rate can fall when unemployed are no longer looking for work and hence the recent rise indicates a strength in the job market.

4. August’s NFP was revised: Despite a negative Payroll’s report was published during the last NFP release Dollar grew stronger on an upward revision of August’s data from 156K to 169K and the expansion of the average hourly earnings. As deflation has been one of the biggest concerns recently wage growth provided to investors a reason – along with the revision – to buy Dollar irrespectively of the headline numbers. For that, hopes over a rate hike till year end rose.

5. Challenger Job cuts fell 4.4%: The Challenger’s report is at a current level of 32.346, down from 33.825 last month and down from 44.324 one year ago. This is a change of 4.4% from last month and -26% from one year ago. With this report the Q3 Average totalled 94.478 jobs compared to 100.799 of Q2 2017 and 121.858 of Q3 last year. This quarter marked the lowest third quarter total since 91,784 job cuts were announced in the third quarter of 1996.

Key Indicators to Focus on for the Upcoming Payroll’s Report


  • Actual, Consensus divergence and Average Divergence
  • Unemployment Claims (4-week average) and if they support Unemployment data
  • ISM Manufacturing reports
  • Job Cuts report


  • GDP and UoM Consumer Sentiment (revision)
  • Core PCE Price Index
  • Personal Spending
  • CB Consumer Confidence
  • ADP Employment Report

For more details check our economic calendar.

A closing word…

Remember that sharp spikes occur across many currency pairs, with a lower impact than the spikes on EURUSD due to weaker volatility.

For example, opportunities may arise on USDJPY, USDCHF, Gold etc., depending always on your risk appetite.

In addition, the price normally retraces back to normal levels by the end of the day, so, investors may look to take advantage of the market once the market have started settling down.



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