FX.co ★ US labor market shows fresh signs of strain

Data show that US employers unexpectedly cut jobs, and the unemployment rate rose in February, indicating lingering instability in the labor market that had been thought to have stabilized.

Last month, nonfarm payrolls fell by 92,000 — one of the largest drops since the pandemic after a strong start to the year. While some negative effects were anticipated (for example, temporary job losses from healthcare strikes and possible weather impacts), this month's decline hit a broad range of industries.

The unexpected slump signals that the US economy still faces serious problems despite some signs of recovery. The unemployment rate rose to 4.4% from 4.3%, deepening concerns. A growing number of jobseekers while vacancies decline, creates an unfavorable environment for consumer spending recovery and, consequently, for overall economic growth.

The figures also call into question whether the labor market is truly stabilizing, as economists and Fed officials had hoped. "The notion that the labor market has worked through the crisis collapses after the report," Pantheon Macroeconomics said.

Friday's Bureau of Labor Statistics report suggests companies may be beginning to implement previously announced layoffs. Recent productivity gains also illustrate how investments in AI have allowed some firms to operate with a more compact workforce.

"This is such a weak labor market that it cannot absorb a strike by 31,000 healthcare workers," said Inflation Insights LLC — referring to the fact that more than 30,000 Kaiser Permanente employees were on strike for much of last month.

These data may once again focus the Fed's attention on the labor market as it weighs how long to keep interest rates at current levels. Recently, policymakers have paid more attention to inflation — even before the US?Israel war with Iran stoked investor fears of price pressure.

This morning, oil prices rose by more than during the whole previous week: WTI jumped 31% over the weekend to $119.

All this suggests that weak employment data — which might otherwise argue for rate cuts — will likely be discounted because rising oil prices will fuel strong inflationary pressure ahead, putting the Fed in a very difficult position.

Technical outlook for EUR/USD

Buyers now need to reclaim 1.1665. Only that will allow a test of 1.1600. From there, the currency pair could climb to 1.1635, but doing so without support from major players will be difficult. The most distant upside target is 1.1670. On the downside, I expect significant buyer interest only around 1.1510. If no buyers appear there, it would be prudent to wait for a new low at 1.1472 or open long positions from 1.1433.

Technical outlook for GBP/USD

Pound buyers need to take the nearest resistance at 1.3340. Only that would allow targeting 1.3380, above which a further breakout will be hard. The most distant upside target is 1.3420. On the downside, bears will try to seize control at 1.3295. If they succeed, a break of that range would deal a heavy blow to the bulls and could push GBP/USD down to 1.3255 with the potential to extend to 1.3215.