Job Losses Shake Stocks but Boost the Dollar

11/07/2008 11:04 am EST

Focus: FOREX

John Jagerson

Co-Founder and Contributor, LearningMarkets.com

The labor reports that appear each month are the announcements many traders "love to hate." The statistical error in the numbers is huge, and although the trend of the announcement is important, each individual announcement can be a little random. Despite the announcement's problems, each release is usually accompanied by unusually high market volatility. Today's report from ADP was no exception to the rule.

ADP, a professional payroll company, releases net jobs lost or gained in the US economy each month. For October 2008, ADP reported that there were 157,000 jobs lost in the US economy. It was also reported that for the first time in several years, there were losses in the very small business (50 employees or less) segment as well. That is not unexpected news, but it was a sharp reminder that risk is still very high, the US economy—and therefore, the world— is in recession, and capital is flowing from higher risk assets like stocks and into bonds.

This is all good for the prevailing trends in the market. The USD benefits as a shelter from uncertainty and risk, while stocks will continue to suffer as growth constricts. For trend traders, this is good news, but perma-long investors are probably using this as a signal to continue covering and controlling risk.

The ADP report is released the Wednesday before the first Friday NFP report from the Bureau of Labor Statistics. Typically, the numbers will differ but the trend will be the same. This is a good time to review the background behind these two announcements.

From a technical perspective, the AUD/USD is against a resistance level of the 38.2% retracement level. A consolidation here and reversal to the downside would not be unexpected.

By John Jagerson, of PFXGlobal.com and LearningMarkets.com.

More about using unemployment reports in your currency analysis in the video below:

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