THE TAKEAWAY: US labor market continues to improve only at a modest pace (+150K to +200K), but July report disappoints handily > Participation Rate falls leading to decline in Unemployment Rate > Second US data poor as well > September QE3 taper in question > USDJPY BEARISH

The strong bout of US economic data the past week proved to be a red herring, as the July labor market report was roundly disappointing. The headline figure at +162K was well-below expectations, and the drop in the Unemployment Rate was aided by a shrinking labor force.

Overall, the report takes away more than it offers; in the sense that it means that the decision to taper QE3 in September has become that much more difficult for the Federal Reserve. As we learned after this Wednesday’s FOMC policy meeting, the Fed isn’t exactly excited about where the US economy is right now, though remains optimistic about the 2H’13.

Here’s the key data driving price action ahead of the US cash equity open on Friday:

- Change in Nonfarm Payrolls: +162K versus +185K expected, from +188K (revised lower from +195K)

- Change in Private Payrolls: +161K versus +195K expected, from +196K (revised lower from +202K)

- Unemployment Rate (U3): 7.4% versus 7.5% expected, from 7.6%

- Underemployment Rate (U6): 14.0% from 14.3%

- Participation Rate: 63.4% from 63.5%

USDJPY 1-minute Chart: August 2, 2013

US_Dollar_Tanks_on_July_NFPs_Miss_Despite_Improved_Unemployment_Rate_body_x0000_i1027.png, US Dollar Tanks on July NFPs Miss Despite Improved Unemployment Rate

Charts Created using Marketscopeprepared by Christopher Vecchio

Following the releases, the USDJPY dropped from a near-session high of ¥99.92 to as low as 98.90, but had recovered to 99.15, at the time this report was written.

Price action was similar across the other USD-majors: the EURUSD rallied from $1.3190 to as high as 1.3284; the AUDUSD rallied from $0.8896 to as high as 0.8969; and the GBPUSD rallied from $1.5142 to as high as 1.5276.

--- Written by Christopher Vecchio, Currency Analyst

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