US Dollar flat in wait-and-see pattern ahead of US jobs report

• The Greenback holds on to weekly gains despite a three-day losing streak.
• Traders are front running expectations of a weaker US Dollar after the US jobs report as rumours point to a disappointing print.
• US Dollar Index retreats but could still eke out twelfth week of gains. 

The US Dollar (USD) sees traders bracing for that final moment that has been keeping every trading desk on edge throughout the week. The monthly US jobs report is due this Friday and will finally confirm or contradict what earlier numbers this week have been suggesting: the US economy and its job market are starting to slow down. There is a very fine nuance here between slowing down instead of contracting: expectations are that numbers will still be positive, pointing to economic growth, though in a less convincing way than previous months. 

Expect to see nearly every asset class being locked until 12:30 GMT when the US Nonfarm Payrolls (NFP) report will be released. Markets have already punished the Greenback throughout the week with a less than expected Institute of Supply Management’s (ISM) Purchasing Managers Index (PMI) print for the Service sector and a miss on expectations for the ADP jobs number. The last few trading hours will be crucial to see if the US Dollar Index (DXY) can still eke out that twelfth week of gains. The US jobs number could just as easily supply more Greenback weakness and end the DXY winning streak.

Daily digest: US Dollar under pressure

• The entire market is focused on 12:30 GMT. Nonfarm Payrolls for September are expected to head from 187,000 to 170,000. The Average Hourly Earnings monthly print is expected to marginally tick up from 0.2% to 0.3%. The US Unemployment Rate is expected to head from 3.8% to 3.7%.
• The Change in Nonfarm Payrolls has an estimation range from 90,000 to 250,000. So to have a firm market moving number, it either needs to be firmly below 90,000 or higher than 250,000. Everything within the range could mean that market movements remain short-lived and retract just hours after the initial move occurs. 
• Equities are near flat with only Hong Kong’s Hang Seng index up over 1.5%. All other indices and futures are less than 0.5% in the green or red. 
• The CME Group FedWatch Tool shows that markets are pricing in a 81.5% chance that the Federal Reserve will keep interest rates unchanged at its meeting in November. The combination of economic numbers this week has erased nearly every probability of another hike. 
• The benchmark 10-year US Treasury yield is trading near 4.74% and is off this week’s high from 4.88%.

US Dollar Index technical analysis: End of the line with NFP

The US Dollar sees its engine stuttering: the US economy is starting to show some signs of less growth. In the past week, traders have punished the Greenback three days in a row on disappointing ISM PMI numbers, lower than expected ADP job numbers and rumours that the US Jobs report this Friday might be a big miss. The US Dollar Index is still clinging on to its twelfth straight weekly gain, though any substantial miss in this Friday’s NFP reading might mean the end of the line for the DXY rally. 

The US Dollar Index opened around 106.33, though the overheated Relative Strength Index (RSI) is acting as a cap as it trades into an overbought region. With 107.19 – the high of November 30, 2022 –  tested on Wednesday, it will be important to see if DXY can get a daily close above that level. If that is the case, 109.30 is the next level to watch. 

On the downside, the recent resistance at 105.88 should be seen as first support. Still, that barrier has just been broken to the upside, so it isn’t likely to be strong. Instead, look for 105.12 to do the trick and keep the DXY above 105.00.