Talking Points:

- September NFPs miss, all but ensuring that the Fed won’t taper QE3 next week.

- Unemployment Rate drops one-tenth of one percent to 7.2%, beating estimates.

- EURUSD hits new 2013 high at $1.3749, highest since November 2011.

The September US labor market report was delayed by two weeks as a result of the US government shutdown, although market participants hoping to have seen progress have been left disappointed. The US economy’s labor momentum slowed further in September, with jobs growth dropping by -23.3% from August.

Accordingly, with the Federal Reserve’s dual mandate and forward guidance currently focused on bringing the Unemployment Rate down to 6.5% before QE3 is fully tapered, the potential silver lining for the report was a one-tenth of one percent drop in the jobless rate, exceeding the forecast for it to have held at 7.3%. As a result, the market reaction has been not purely USD-negative, but rather risk-positive.

Here’s the data sinking the world’s reserve currency and boosting risk appetite:

- Change in Nonfarm Payrolls (SEP): +148K versus +180K expected, from +193K (revised higher from +169K).

- Change in Private Payrolls (SEP): +126K versus +180K expected, from +161K (revised higher from +152K).

- Unemployment Rate (SEP): 7.2% versus 7.3% expected unch.

- Participation Rate (SEP): 63.2% unch.

Overall, the data paints a meager picture of the US labor market in September, which all but certainly deteriorated in October thanks to the US government shutdown. The three-month NFP average dropped to +143K, the lowest rate in 2013, and the lowest since August 2012 (+135K).

Accordingly, with the Federal Reserve having labeled US fiscal issues as a prime reason not to taper QE3 in September, we find that another hold at $85B/month next week is increasingly likely in the wake of today’s NFP report. Price action in FX markets after the NFP report suggests a similar outcome.

EURUSD 1-minute Chart: October 22, 2013

US_Dollar_Drops_as_September_NFPs_Miss_-_EURUSD_Hits_Fresh_2013_High_body_x0000_i1027.png, US Dollar Drops as September NFPs Miss - EUR/USD Hits Fresh 2013 High

Charts Created using Marketscopeprepared by Christopher Vecchio

Following the data, the EURUSD soared from $1.3674 to as high as 1.3749, breaking the former 2013 high set on February 1 at 1.3710. However, at the time this report was written, the pair had given back a small portion of its gains, trading at 1.3727.

Similar price action was observed elsewhere, although it should be noted that the initial USDJPY selloff quickly reverted as risk appetite firmed across the board: the USDJPY dropped from ¥98.33 to 97.86 on the release of the data; but at the time this report was written, it had since recovered to 98.42, a fresh session high. Confirming the firming sentiment, the AUDJPY was seen rallying from ¥95.03 to 95.47.

--- Written by Christopher Vecchio, Currency Analyst

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