FX.co ★ Weak US employment data may have a strong impact on the future of the dollar and equity markets

A large amount of important economic data was released on Thursday, which will undoubtedly have a noticeable impact on investor sentiment in the near future.

Let's start with the presented data of PMIs in the manufacturing sector in the eurozone, Germany and the UK. The numbers came out positive. If in the case of the German indicator, the value of 66.6 points was in line with the forecast, then for the eurozone and Britain, the indices showed growth that exceeded the forecasts. So, the index of business activity in the manufacturing sector (PMI) in March in the euro area jumped to 62.5 points against the February value of 57.9 points. The British indicator rose to 58.9 points from 55.1 points a month earlier.

In view of these data, European stock indexes received support, which only strengthened with the opening of trading in the United States, where the March values of the manufacturing PMI also came out significantly more than expected, jumping to 64.7 points against the February value of 60.8 points.

Indeed, the positive news was fairly appreciated by the markets, which was reflected in the growth of stock indices. But the dollar on this wave, on the contrary, was under pressure. The main reason was the publication of the number of applications for unemployment benefits in America over the past week. The data again showed an increase in applications, and it was significantly higher than the forecast - 719,000 against a revised value of 658,000 downwards a week earlier. An increase to 680,000 was expected. The numbers are really unpleasant, especially ahead of the release today of the official data on employment in the non-agricultural sector of the US economy for March.

Recall that according to the presented forecast, the US economy should have received 647,000 new jobs, compared to 379,000 in February. The unemployment rate is also expected to fall to 6.0% from 6.2%.

Today, these values will be the focus of attention. They will determine whether the market will receive an incentive to further growth on Monday (since in fact the markets in Europe, as well as the United States and Canada will be closed due to the weekend – Good Friday before the Catholic Easter), or, on the contrary, it will turn down because of possibly weaker data.

The future expected change in the Fed's monetary policy in the wake of forecasts of a strong recovery in the US economy is important in assessing the prospects for the dynamics of both stock markets and currency markets. So far, we have noticed some dissonance recently. Business and economic activity in the United States is growing, but the labor market remains weak. Otherwise, the economic recovery will be unstable and local. In any case, the state dollar market, which is sensitive to this, has already reacted by reducing the yield of treasuries. Thus, at the end of trading on Thursday, the yield of the benchmark 10-year treasuries fell from 1.737% at the open to 1.673% at the close. This indicates that among investors in the bond market, there are probably doubts that the Fed's projected recovery of the American economy, and then strong growth, may stall. This can be clearly demonstrated by the dynamics of the labor market.

It is believed that if the number of new jobs is lower than expected — this will lead to a local fall in the dollar exchange rate and to an increase in doubts in the investor environment that the American economy will really recover vigorously, which will affect the stock markets in the world and necessarily the dollar exchange rate.

Forecast of the day:

The EUR/USD pair is trading below the 1.1785 level. If the number of new jobs in the US is below expectations — this will lead to a breakout of the level and to the growth of the pair to 1.1875. At the same time, if they are better than the forecast, the pair will undoubtedly fall to 1.1700.

The USD/JPY pair is consolidating above the 110.40 mark in anticipation of the release of data from the US. It can also grow or fall in line with the published values of the number of new jobs. If they are weaker than the forecast, the pair will fall to 109.50. Conversely, if higher than expected, the pair will rise to 111.70.