The US Dollar (USD) trades slightly on the back foot on Friday as markets brace for potentially the most volatile event of the week, Nonfarm Payrolls (NFP). Markets are increasingly considering the possibility that the US Federal Reserve (Fed) could opt for a big interest-rate cut compared with the beginning of the week after a streak of labor-market-related data came weaker than expected. A big miss in the Nonfarm Payrolls number will confirm this stance, while a big beat on estimates might see a spicy outcome, with the US Dollar rallying and rate cut bets being quickly unwound.
The Nonfarm Payrolls print will be the main element together with the Unemployment Rate and the monthly Average Hourly Earnings. However, the surprise might come right at the end of the trading day with Federal Reserve Governor Christopher Waller due to speak after the Nonfarm Payrolls print is published. Fed Waller is known for delivering some market-moving comments, and he might be the one to confirm if in September the Fed will go for a 25-basis-point or a 50-basis-point rate cut.
The Nonfarm Payrolls release presents the number of new jobs created in the US during the previous month in all non-agricultural businesses; it is released by the US Bureau of Labor Statistics (BLS). The monthly changes in payrolls can be extremely volatile. The number is also subject to strong reviews, which can also trigger volatility in the Forex board. Generally speaking, a high reading is seen as bullish for the US Dollar (USD), while a low reading is seen as bearish, although previous months' reviews and the Unemployment Rate are as relevant as the headline figure. The market's reaction, therefore, depends on how the market assesses all the data contained in the BLS report as a whole.
Read more.Next release: Fri Sep 06, 2024 12:30
Frequency: Monthly
Consensus: 160K
Previous: 114K
Source: US Bureau of Labor Statistics
America’s monthly jobs report is considered the most important economic indicator for forex traders. Released on the first Friday following the reported month, the change in the number of positions is closely correlated with the overall performance of the economy and is monitored by policymakers. Full employment is one of the Federal Reserve’s mandates and it considers developments in the labor market when setting its policies, thus impacting currencies. Despite several leading indicators shaping estimates, Nonfarm Payrolls tend to surprise markets and trigger substantial volatility. Actual figures beating the consensus tend to be USD bullish.
The US Dollar Index (DXY) is the sum of all parts that are taking place in the markets. Investors increasingly price in that the Fed will need to cut interest rates by more than what was anticipated a few weeks ago. Although a rate cut might be granted, the recent US economic data still puts the economy on a glide path for a soft landing, which means the Fed isn’t likely to cut aggressively as that would risk sparking inflation again.
Looking at key technical levels, 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 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
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