- The US Dollar trades lower with ADP coming in softer.
- ADP data for July revised lower as well
- The US Dollar Index retreats and flirts with a break below 101.00.
The US Dollar (USD) trades softer on Thursday, with a lot of data points set to be released in a condensed time span. The Greenback already eased on the back of the JOLTS Job Openings report on Wednesday, when the previous number was revised and the recent print for July came in below the estimation. It was enough for markets to price in more rate cuts by the Federal Reserve (Fed) and devalue the US Dollar on the back of narrowing the interest rate gap between the US and other countries.
On the economic data front, it will be up to experienced traders to navigate the set of data that will be released on Thursday to markets. The monthly ADP Employment Change for the private payrolls release already came in softer than expected, while the previous number got revised down as well. Next up the weekly Initial/Continuing Jobless Claims, which will move the US Dollar. The Purchasing Managers Index (PMI) Services data from the Institute for Supply Management (ISM) is also of note.
Daily digest market movers: ADP weighs with JOLTS on US Dollar
- At 11:30 GMT, the Challenger Job Cuts for August jumped up 193% from 25,885 to 75,891.
- At 12:15 GMT, the ADP Employment Change for August contracted from 122,000 to only 99,000. That is below the estimated elevated number at 145,000. To make matters even worse, the July number got revised lower from 122,000 to 111,000.
- At 12:30 GMT, the weekly Jobless Claims data came in:
- Initial Claims came in at 227,000, coming from 232,000 previously.
- Continuing Claims falls from 1.860 million to 1.838 million for this week.
- In the slipstream of the weekly Jobless Claims, the monthly Nonfarm Productivity and Unit Labor Costs for the second quarter were released. For the Nonfarm Productivity, a small uptick from 2.3% to 2.5%. The Labor Cost fell from 0.9% to 0.4%.
- At 13:45 GMT, S&P Global will deliver its final reading for the Services and Composite PMI numbers for August. Services are expected to remain stable at 55.2, and the composite is expected to remain at the previous reading of 54.1.
- The Institute for Supply Management (ISM) will close this Thursday’s data batch at 14:00 GMT with its August reading for the Services sector:
- The PMI headline number is expected to come in at 51.1, downfrom 51.4 in July.
- The Employment Index was at 51.1 the previous month, with no forecast available.
- The New Orders Index was at 52.4 in July, with no forecast available.
- The Prices Paid Index was at 57, with no estimation pencilled in.
- Equities are still in the red, failing to pop back in the green after the ADP miss.
- The CME Fedwatch Tool shows a 55.0% chance of a 25 basis points (bps) interest rate cut by the Fed in September against a 45.0% chance for a 50 bps cut. Another 25 bps cut (if September is a 25 bps cut) is expected in November by 30.2%, while there is a 49.5% chance that rates will be 75 bps (25 bps + 50 bps) below the current levels and a 20.3% probability of rates being 100 (25 bps + 75 bps) basis points lower.
- The US 10-year benchmark rate trades at 3.73%, the lowest level this week and retreats further, narrowing the rate gap with other currencies.
US Dollar Index Technical Analysis: Summer euphoria is gone
The US Dollar Index (DXY) looks to be stuck in a tight range, remaining there for now after Tuesday’s data was unable to move the needle. With the JOLTS Job Openings report on Wednesday, the assumption is the same: any number that comes in substantially above or below consensus will move the DXY in either direction. Meanwhile, markets are giving a bigger chance to a 50 basis point rate cut by the Fed this month.
The first resistance at 101.90 is starting to look very difficult to break through after it already triggered a rejection earlier this week. Further up, a steep 2% uprising would be needed to get the index to 103.18. Finally, a heavy resistance level near 104.00 not only holds a pivotal technical value, but it also bears the 200-day Simple Moving Average (SMA) as the second heavyweight to cap price action.
On the downside, 100.62 (the low from December 28) could soon see a test in case data supports more rate cuts from the US Federal Reserve (Fed). Should it break, the low from July 14, 2023, at 99.58, will be the ultimate level to look out for. Once that level gives way, early levels from 2023 are coming in near 97.73.
US Dollar Index: Daily Chart
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off” refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
