June 4, 2021 13:50:18

The NFP headline print disappointed those hoping last month’s number was an anomaly with revisions to April’s figure meagre as well. The net 559k jobs added missed expectations of 665k and the whisper number of 790k. In total, there are still more than 7.6 million fewer people in work than before the pandemic crisis started.

There are numerous reasons why the supply-demand mismatch for workers is still playing out which include worker worries about catching Covid, continued home schooling and older workers who’ve decided not to return to the workplace.

Broader labour shortages stemming from overly generous expanded benefits are also deterring people from work, although over 20 Republican states have announced an early scaling back of support of the unemployed ahead of the September expiry. Notably, jobs in the leisure and hospitality sector did pick up in May but near-term, this seems to be the major reason why we are not seeing bigger headline gains. Does this phasing out, vaccination progress and stimulus checks being spent see labour shortages disappear fairly quickly past the summer, pushing up the current three-month average of 535k job gains?

Predictably, the dollar has sold off with USD/JPY topping out at 110.32 and heading back towards the recent lows as yields fall (and potentially lower on the week), while the move in USD/CHF which we highlighted yesterday looks like a false break as the pair moves back into the bearish channel below 0.90.

GBP/USD close important

Switch to a 4-hour chart and we can see how important 1.41 has been as a level for buyers to step in and the pair to rebound over the last few weeks. Prices are now pushing up to the top of the sideways channel having cut through the 100 and 200-hour SMA. A strong close on the week, above 1.4219 especially which is last week’s high (or at least last week’s close at 1.4180) will encourage bulls to aim for this week’s/month’s high at 1.4250.

US inflation data is certainly something to be wary of next week although a bumper number hitting multi-year highs is already expected – is this priced into the dollar already? Anything less than this and taper talk will not be started and GBP/USD can make new highs on its way to 1.4377. Very solid support resides at 1.41 as stated earlier.