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EUR/USD Fails to Rally, Accelerates Decline After NFP

July 2, 2020 by

EUR/USD was attempting to rally today but has failed and is currently trades below the opening level. The decline accelerated following the release of better-than-expected nonfarm payrolls. The employment report was moved to Thursday due to a holiday on Friday.

Nonfarm payrolls rose by 4,800k in June, exceeding the average forecast of 3,037k. The May value was revised from 2,509k to 2,699k. Unemployment rate fell from 13.3% to 11.1%, below the forecast figure of 12.4%. Average hourly earnings fell by 1.2%. That is compared with the forecast drop of 0.8% and the decline of 1.0% registered in May. (Event A on the chart.)

Initial jobless claims were at the seasonally adjusted level of 1,427k last week, down from the previous week’s level of 1,482k. Analysts had predicted a bigger drop to 1,350k. (Event A on the chart.)

US trade balance deficit widened to $54.6 billion in May from $49.8 billion in April. The average forecast had promised a smaller increase to $53.0 billion. (Event A on the chart.)

Factory orders rose by 8.0% in May, trailing the analysts’ consensus projection of 8.6%. The April drop got a revision from 13.0% to 13.5%. (Event B on the chart.)

Yesterday, several reports were released (not shown on the chart):

ADP employment climbed by 2,369k in May but failed to meet market expectations of a jump to 2,850k. The April increase got a positive revision from 2,760k to 3,065k.

Markit manufacturing PMI rose to 49.8 in June from 39.8 in May according to the revised estimate. Market participants were expecting the same 49.6 reading as in the preliminary estimate.

ISM manufacturing PMI climbed to 52.6% in June from 43.1% in May, exceeding the average forecast of 49.5%.

Construction spending dropped by 2.1% in May after plunging by 3.5% in April (revised from 2.9%). That was a total surprise to market participants who were expecting a 1.0% increase.

US crude oil inventories dropped by 7.2 million barrels last week, much more than analysts had promised — 0.9 million barrels. Nevertheless, the stockpiles remained far above the five-year average for this time of year. The reserves increased by 1.4 million the week before. Total motor gasoline inventories rose by 1.2 million barrels and were also above the five-year average.

FOMC released minutes of its June monetary policy meeting. The notes showed that policymakers were worried about the potential return of the coronavirus pandemic:

A number of participants judged that there was a substantial likelihood of additional waves of outbreaks, which, in some scenarios, could result in further economic disruptions and possibly a protracted period of reduced economic activity.

As for future policy actions, the minutes did not make any interesting revelations but FOMC members signaled that will be trying to communicate their plans more clearly to the public:

Participants agreed that the current stance of monetary policy remained appropriate, but many noted that the Committee could, at upcoming meetings, further clarify its intentions with respect to its future monetary policy decisions as the economic outlook becomes clearer. In particular, most participants commented that the Committee should communicate a more explicit form of forward guidance for the path of the federal funds rate and provide more clarity regarding purchases of Treasury securities and agency MBS as more information about the trajectory of the economy becomes available.

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