Talking Points:

- January NFPs miss expectations badly, two consecutive months of misses >60K.

- US Dollar initially lower and high yield FX benefits; reversal developing.

- US 10-year Yield slumps to 2.630% before returning to 2.675%.

The January US labor market report was widely anticipated to check the soft December jobs figures, but no such development has occurred. In the first month after the Federal Reserve decided to wind down its QE3 program – and the first since the second $10B cut to QE3 – there is only hollow evidence that the US economy is able to stand on its own.

Curiously, there was a major divergence between the commonly viewed Nonfarm Payrolls report and the less popular Household Employment survey. This labor market report from the BLS is based on a different data series, and produced a print of +638K from +143K. This may be helping insulate the US Dollar as price action has been volatile and lacking direction.

Here’s the data sending the US Dollar on a ride:

- Change in Nonfarm Payrolls (JAN): +113K versus +187K expected, from +75K (revised higher from +74K).

- Change in Private Payrolls (JAN): +142K versus +185K expected, from +87K (revised higher from +89K).

- Unemployment Rate (JAN): 6.6% versus 6.7% expected.

- Participation Rate (JAN): 63.0% from 62.8%.

Another_Weak_Jobs_Report_Sends_USDJPY_to_102_EURUSD_to_1.3600_body_Chart_1.png, Another Weak Jobs Report Sends USD/JPY to ¥102, EUR/USD to $1.3600

US yields have been hammered the past several weeks (bond prices increasing), and the weak jobs data initially provoked a further flattening of the yield curve (when bonds with longer duration see their yields decrease at a faster rate than the shorter-end of the yield curve). The drop in the US 10-year Treasury Note yield to 2.630% also dragged USDJPY from near ¥102.50 ahead of the release to under 101.50.

USDJPY 1-minute Chart: January 10, 2014 Intraday

Another_Weak_Jobs_Report_Sends_USDJPY_to_102_EURUSD_to_1.3600_body_USDJPY.jpg, Another Weak Jobs Report Sends USD/JPY to ¥102, EUR/USD to $1.3600

Charts Created using Marketscopeprepared by Christopher Vecchio

However, with the 10YY having rebounded back to as high as 2.675% at the time this report, was written, the USDJPY had retraced nearly the entirety of its losses. The pair rallied up to as high as 102.54 ahead of the report, before falling from 102.42 on the release to as low as 101.48. At the time this report was written, in line with the rebound in US yields, the USDJPY was trading at 102.16.

--- Written by Christopher Vecchio, Currency Analyst

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