TODAY FOREX IN REVIEW

This week is full of employment figures from both the Eurozone and the United States. Unemployment in the European Union is widely expected to reach new highs as the sovereign debt crisis stalls hiring and austerity nibbles away at spending in major economies. With jobless youths touching record levels, it is a clear harbinger of the troubles facing global governments contending with low growth and high unemployment. The demonstrations spreading across the Mediterranean States in protest of austerity and lack of pro-growth measures will certainly flourish in the short-term as governments contend with making difficult spending cuts.

The aim of the most recent Quantitative Easing 3 program is to stimulate employment and add jobs to the sputtering American economy. Nonfarm payroll data which last month disappointed investors is expected to see gains of 125,000 for the period ending in September. However, the unemployment rate which fell to 8.10% last month is expected to rise to 8.20%. Initial claims data has proven mixed over the course of the last month so there is limited visibility with respect to forecasting the latest NFP data considering weakening manufacturing and durable goods orders. Labor market participation has dropped to multi-decade lows which is consistent with recent continuing claims dropping. ADP data, while reliable as the largest private payroll processor in America, has proven not dependable as an indicator for NFP figures.

With the Federal Reserve setting employment as a cornerstone of its forward looking policy, the expectation is that further easing will translate to longer-term business investment and provide the optimal conditions for sustained hiring in the economy. However, the last two programs have proven that the marginal returns from more monetary easing continue to diminish over time. Will the Fed with its targeted policy be able to tackle higher unemployment, or fall flat in its efforts because of continued fear and uncertainty? Only time will tell.
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