USD smashed as we are flying blind on US payrolls data

A reality check on US jobs data – are we flying blind on the US labor market?
The July US jobs report triggered a nasty slide in the US dollar. It wasn’t the small miss on the headline payrolls growth number (73k versus the 100k+ expected), but the -258k revision of the prior two months of data that spooked the market. Sure, it has been clear for some time that the US labor market data is poor due to the difficulties inherent in the BLS’s “birth and death” (of businesses and therefore of imputed payrolls) and because response rates to the BLS surveys has declined badly since the pandemic, to around 40% from 60% or more previously. And yes, revisions have been consistently negative for the last two years, but these tended to come with a significant delay. The rapid and very large downward revision for the May and June data suggests that were are all flying blind on the payrolls data and can’t trust what we are seeing month to month, with revised data carrying more weight than the most recent data, which is of the poorest quality.

The market reaction to the weak US data was swift and brutal: an ugly sell-off in the greenback and a spectacular reversal in the USDJPY, just a day after it had squeezed through all meaningful local resistance and the psychological 150.00 levelb (more below in USDJPY chart discussion). The Fed is now marked nearly certain to cut rates in September from sub 40% probability before the Friday’s jobs report and the benchmark two-year US treasury yield collapsed nearly 30 basis points in one of the largest moves in years, only exceeded twice since the regional bank crisis in early 2023. The JPY was the largest mover on the “ideal” (for JPY) combination of risk off and the collapse in yields. EURUSD also reversed, rallying hard into the key area above 1.1550 that would need overcoming to suggest the local lows are in.

Elsewhere, I remarked on Friday with some surprise that the Trump administration’s 39% tariff on Switzerland hadn’t really impacted the Swiss franc, but that changed later on Friday and today as CHF sold off, also on a low headline CPI reading (-0.2% MoM, though note the +0.8% YoY core reading versus 0.6% expected and 0.6% prior). But do note the July PMI services for Switzerland out this morning at 41.8 vs. 48.5 in June – yikes! That is the lowest since the pandemic outbreak.

Chart: USDJPY
An epic reversal in USDJPY just after it has crossed into the new range above 149.50 and the psychologically important 150.00 level. This puts a firm cap on the action for now unless we can reverse either the dip in global bond yields or the risk-off tone in markets or both. The 146-145 zone is the next important one to traverse for a test of the gigantic 142-140 structural area, with 148.00 as tactical resistance after today’s action.