Not so fast.
In the last month the market has been piling into 'pivot' trades around the idea of a Fed top at 5% and a turn in the economy. Jobs are a lagging indicator but aside from some pockets of softness in tech and manufacturing, there isn't widespread softness.
Dollar longs were certainly a crowded trade a month ago but much of that has been cleared out -- particularly USD/JPY -- and that left the market vulnerable in the other direction into today's non-farm payrolls report. When the numbers were strong at +263K compared to 200K expected, the dollar shot higher. Adding to the momentum was a +0.6% m/m rise in earnings compared to +0.3% expected.
There were some caveats there with the household survey remaining soft and hours worked falling but it certainly wasn't a report showing the Fed has overdone it, or at least not yet.
USD/JPY shot to 135.88 from 134.00 on the report, reversing what had been a large decline in to a 60-pip gain. Elsewhere, cable is now down 96 pips on the day and the euro off by 75 pips. The dollar had been very soft all week ahead of the data so this set up a relief rally.
On the flipside, stocks tanked with the S&P 500 off by 63 points.
