To the relief of dollar bulls, US corporations cut only 20k jobs in the month of April compared to the market's -75k expectations. The unemployment rate also dropped from 5.1 to 5.0 percent, triggering a widespread dollar rally. The better than expected NFP number will help to confirm the near term bottom in the US dollar.

The manufacturing sector continued to lose jobs, as the primary improvement came from the service sector. Unfortunately calling NFPs this month was particularly difficult since service sector ISM is not released until Monday. This is actually the third month in a row that the service sector has added jobs thanks to education, leisure and business services. The positive thing about the report is that there was 29k jobs cut from the private sector, only slightly worse than the headline number. 

 

However traders should be careful of being overly optimistic because given the amount of layoffs that have been announced over the past month and the trend of jobless claims, this should only be a temporary relief in the US economy. We have given the reasons in our non-farm payrolls preview.

 

If the US economy is truly in a recession, job losses will escalate. During the last 3 recessions, there was a string of job losses that lasted for a minimum of 10 months. In each of the past 3 recessions, the largest single month job loss was more than 300k. In this context, there is still a very strong possibility of a 100k drop in the coming months. 

 

For the Federal Reserve, this is good news because it validates their hawkish comments. They also have the benefit of seeing the non-farm payrolls report for the month of May before making their next monetary policy decision.

Written by Kathy Lien, Chief Strategist Dailyfx.com