- The US Dollar sees selling pick up again at exact the same time of day as earlier this week.
- The Greenback sees its technical bounce being foiled.
- The US Dollar index trades near 101.40, with a long road to recovery ahead.
The US Dollar (USD) is back to flat, residing near the opening level of 2024 and could still see this year’s performance turn negative. A very specific element that draws attention, is that again spot on at 12:30 GMT, the US Dollar selling frenzy takes place. This could point to US hedge funds that are being very active for a third day in a row, seeing the recent moves in speculative futures positionings from hedge funds on Japanese Yen, US Dollar and Euro.
On the economic data front, the Federal Open Market Committee (FOMC) Meeting Minutes for July will be published, although these are not expected to move the needle ahead of Jackson Hole on Friday. Besides the FOMC Minutes, the Nonfarm Payrolls Benchmark revision could become interesting. Markets were rattled by the latest US Nonfarm Payrolls number on the first Friday of August, a data point that triggered the unwinding of the carry trade which had spillover effects in equities and caused recession concerns for the US economy. Although the revisions are not going to cover August, any big change on earlier numbers might still bear some importance.
Daily digest market movers: Nonfarm revisions until March at hand
- Earlier this Wednesday, Mortgage Applications fell by 10.1% against the number last week.
- At 14:00 GMT, the Nonfarm Payrolls Benchmark revision is due to come out. The revisions will cover 12 months up to March of this year.
- The US Treasury is set to allocate a 20-year Bond at 17:00 GMT.
- At 18:00 GMT, the Fed will release its Minutes from July’s meeting.
- Asian equity markets are facing a bit of pressure and are in the red, which helps the US Dollar strengthen a touch. European and US equities are on the rise.
- The CME Fedwatch Tool shows a 69.5% chance of a 25 basis points (bps) interest rate cut by the Fed in September against a 30.5% chance for a 50 bps cut. Another 25 bps cut (if September is a 25 bps cut) is expected in November by 50.9%, while there is a 40.9% chance that rates will be 75 bps below the current levels and an 8.2% probability of rates being 100 basis points lower.
- The US 10-year benchmark rate trades at 3.81%, printing a fresh low for the week.
US Dollar Index Technical Analysis: Secret seller in the market
The US Dollar Index (DXY) is trying to snap the losing streak with some conviction. The bounce comes after the DXY hit the low seen on January 2, which is the low of this year as well. The question is if this has room to go higher considering there are no real significant data elements or market movers ahead of Jackson Hole on Friday.
Defining pivotal levels becomes very important in order to avoid any dead-cat bounces, in which traders pile in too quickly in a trade and get caught on the wrong side of the fence once the course reverses. First up is 103.18, a level that traders were unable to hold last week. Next up, a heavy resistance level is at 103.99-104.00, and inches above there is the 200-day Simple Moving Average (SMA) at 104.07.
On the downside, 101.30 (low from January 2) is trying to hold for now and has triggered a bounce thus far. Should it break, the low of December 28 at 100.62 will be the ultimate level to look out for.
US Dollar Index: Daily Chart
Employment FAQs
Labor market conditions are a key element in assessing the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels because low labor supply and high demand leads to higher wages.
The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.
The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given their significance as a gauge of the health of the economy and their direct relationship to inflation.