NFP Quick Analysis: Dollar buying opportunity? Two reasons why dollar downing is likely temporary

Another month, another increase that would be tremendous before the pandemic – but now it points to a slow recovery. The world´s largest economy gained only 559,000 jobs in May, below 664,000 expected and under the marginally higher whisper numbers. ADP´s data raised estimates.

Moreover, the upside revision for April was a meager 12,000, from 266,000 to 278,000 in the updated read. The lack of a significant bump up in last month´s figure is joining the headline miss and makes it a double disappointment.

The dollar has retreated in the immediate aftermath, with EUR/USD jumping some 50 pips. However, there are two reasons to expect it to be a mere correction, not a change of course, and they are both related to inflation.

First, Will rising prices push the Fed toward tapering? That has been the main question on investors' minds. Inflation and expectations further increases have been dismissed by most bank members as transitory.

To have inflation persist, wages need to rise and that is what is happening: earnings rose by 0.5% monthly in May, far above 0.2% expected. With higher wages, consumers can buy more and escalate cost increases. 

Secondly, the dollar's falls could be limited by the wait toward next Thursday's Consumer Price Index publication. It comes after the Fed entered its blackout period, which means the bank does not have the ability to dismiss elevated prices as "transitory." 

The mix of higher wages and the wait for CPI could support a mean-reversion in the dollar – something that tends to happen every month, as FXStreet's new study shows.

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