EUR/USD chokes as jobless claims point to the worst Nonfarm payrolls data

By: Crispus Nyaga
Crispus Nyaga
Crispus is an active trader, where he is followed and copied at Capital.com. He lives in Nairobi with his… read more.
on May 7, 2020
  • The EUR/USD pair declined today as the market reacted to weak jobless claims data.
  • More than 3.1 million Americans filed for unemployment insurance in the previous week.
  • This data provides a glimpse of the worst nonfarm payrolls data that will be released tomorrow.

The EUR/USD pair dropped as the market reacted to the latest US jobless claims data. The numbers showed how the US economy is deteriorating as the lockdown, and social distancing measures remain. They also point to the worst nonfarm payrolls data that will be released tomorrow.

Jobless claims
EUR/USD falls after jobless claims disappoint

US jobless claims data disappoint

More than 3.169 million Americans filed for jobless claims last week, according to data from the Department of Labour. The data means that more than 33 million Americans have registered for these claims in the past seven weeks. It also exceeds, by far, the number of jobs created in the past decade.

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The jobless claims released today was slightly higherthan the 3 million analysts polled by Reuters were expecting. According to USA Today, analysts at Goldman Sachs and Bank of America were expecting the claims to increase by 3.8 million and 3.3 million respectively.

These claims show how the coronavirus pandemic and subsequent lockdowns have hurt the American economy. Just yesterday, Uber, one of the biggest technology groups, said that it would lay-off more than 3,000 employees. Similarly, as oil prices remain low, many companies are cutting investments and shedding jobs.

Earlier on, the EUR/USD pair moved after data from Challenger showed that job cuts increased by more than 1,576% in April. The number was 202% higher than the job cuts announced in March. According to the researchers, more than 1.01 million jobs have been cut this year compared to the 230k announced in the first four months of 2019. The report said:

“No doubt employers have every intention of bringing back workers once the immediate crisis passes, but the indefinite nature of this pandemic coupled with the fact that we’re seeing recession- or even depression-level economic data means the vast majority of these jobs will not return any time soon.”

US Nonfarm payrolls data eyed

The jobless claims data came a day after ADP released its private payrolls data for April. The numbers showed that American companies removed more than 20 million people from their payrolls through April 12.

According to the report, most of these job losses – about 8.9 million – happened in large companies with more than 500 employees. Small businesses with less than 50 employees lost more than 6 million. In a sectoral basis, the service-providing sector was the most affected. The industry lost more than 16 million jobs while the goods-producing industry lost more than 4 million jobs.

The giant leisure and hospitality lost the most jobs because most of these locations were closed in April as they complied with their states lockdown.

ADP nonfarm payrolls disappoint

The jobless claims data also came a day before the Bureau of Labour Statistics releases its official payrolls numbers. Analysts expect the bureau to report a record decline in these payrolls. Those polled by Dow Jones predict the NFP data to fall by a record 22 million and the unemployment to shoot to 15 per cent. Two months ago, the rate of unemployment (U3) was at a 50-year low of 3.5%.

Meanwhile, analysts polled by Factset predict a decline of 21 million payrolls following a 701k decrease in March. They also expect the U6 unemployment rate to soar to a record 20%. The U6 is often seen as a more accurate unemployment rate because it includes involuntary part-time workers. The number also includes people who have not looked for work in the previous month.

Analysts also expect the number of working hours and wages to have dropped in April. Experts at Oxford Economics expect the weekly hours to have fallen to 33.7 in April. They also expect wages to drop from the previous 0.4% to 0.1%. The analysts said that every 0.1% drop in hours worked equated to about 125,000 fewer jobs.

The labour force participation rate dropped to 62.7% in March, which was the lowest level since 1968. Analysts polled by Reuters expect the rate to fall to about 59.5% in the previous month. Worse, a one percentage point decline in the participation rate translates to about 2 million jobs. In a statement to CNBC, Fed’s James Bullard said:

“The unemployment rate is going to be extremely high. We think 20% isn’t unlikely, could even be higher than that. You’ve got this PPP program, which has encouraged firms to keep their workers on their payrolls even though they’re not doing much business.”

EUR/USD technical forecast

EUR/USD
EUR/USD technical forecast

On the four-hour chart, the EUR/USD pair declined to an intraday low of 1.0775, which was the lowest level since April 27. The price is below the 50-day and 25-day exponential moving average while the RSI has dropped to the oversold level of 30. Therefore, I expect the EUR/USD pair to continue falling ahead of the official NFP data tomorrow.

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