Unemployment Claims Disappoint
The US economic recovery was called into serious question today as the number of Americans claiming unemployment benefits rose to 480,000 from a previous 472,000 (revised from 470,000) vs. a drop to 461,000 predicted by analysts. This does not appear to be in line with an economic recovery, although the market reaction was likely a little overdone. For example, USD/JPY dropped 200 pips in the hours following the release before stabilizing below 90.000, showing that jittery traders are not at all convinced the recovery is really underway.
The Unemployment numbers do not bode well for tomorrow's Non-Farm Payrolls (NFP), which is probably the main reason markets over-reacted, as they priced in a much lower NFP than the estimated +10,000 number (the first positive forecast since January 2008). According to the markets' reaction to today's data, the NFP will come in well below expectation. On the other hand, if the NFP comes out positive at all, it will also be the first since January 2008, and will likely cause violent moves across all markets and asset classes, easily overwhelming today's jitters. The likely beneficiaries of such movements are likely to be commodities and JPY crosses, particularly those which have a commodity base currency, such as AUD/JPY.
We still believe the inverse head & shoulders in USD/JPY could play out, and a positive NFP number could be the catalyst for that move, despite today's price action.
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