US Dollar focus on job’s data ahead of Friday’s NFP
- The US Dollar trades sideways ahead of a very chunky data release on Thursday.
- Markets are still worried about headwinds for Europe and the Nvidia subpoena.
- 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 and the weekly Initial/Continuing Jobless Claims stand out, 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: Steer through the data
- At 11:30 GMT, the Challenger Job Cuts for August will be released. The previous number was 25,885.
- At 12:15 GMT, the ADP Employment Change for August will be hitting markets. An uptick to 145,000 is expected from the previous number of 122,000.
- At 12:30 GMT, the weekly Jobless Claims data are due to be released.
- Initial Claims are expected to stay steady at 230,000 in the week of August 30, coming from 231,000 the previous week.
- Continuing Claims are set to head to 1.87 million in the week of August 23 from 1.868 million.
- In the slipstream of the weekly Jobless Claims, the monthly Nonfarm Productivity and Unit Labor Costs for the second quarter will be released. For the Nonfarm Productivity, a steady 2.3% increase is expected, while the Unit Labor Costs should remain at 0.9%.
- 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 floating wreckage after the hit they took on the back of the NVIDIA (NVDA) correction after the company got a subpoena by the US Justice Department for breaching antitrust laws. All major indices are in the red, though they are overall less than 1%.
- 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 3.76%, the lowest level this week.
US Dollar Index Technical Analysis: That does not look good
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
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
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