- The US Dollar trades sideways in a tight range this week ahead of key US employment data.
- Markets brace for JOLTS numbers after ISM Manufacturing PMI did not move the needle.
- The US Dollar Index remains just below an important technical level.
The US Dollar (USD) trades sideways on Wednesday ahead of some key US economic data. Meanwhile, equity markets have a severe hangover with tech stocks selling off. The nosedive took place after NVIDIA (NVDA) received a subpoena from the US Justice Department on whether the chipmaker violated antitrust laws.
On the economic data front, all eyes will be on the appetiser preceding the US Jobs Reports with the Nonfarm Payrolls (NFP) release on Friday, and that is the JOLTS Job Openings release on Wednesday. Although there is no correlation between both numbers, the lagging US JOLTS Job Openings report can reveal if certain sectors are cutting down on their demand for labor force. Markets are still to make up their mind if the US Federal Reserve (Fed) will cut by 25 or 50 basis points in September.
Daily digest market movers: Soft start yet again
- During US trading hours on Tuesday, news reported that the US Justice Department has subpoenaed NVIDIA (NVDA) for possible violations of antitrust laws. This triggered a selloff in the broader tech space that spilled over into the Asian and European session.
- At 11:00 GMT, the Mortgage Bankers Association has released its Mortgage Applications Index for the last week of August. The previous number was a slim 0.5% with this time a 1.6% uptick.
- At 12:30 GMT, the US Gods and Trade Balance data will be released. For July, a deficit of $79 billion is expected after June’s deficit of $73.1 billion.
- At 14:00 GMT, the JOLTS Job Openings report for July will be released. June’s number came in at 8.184 million vacancies, with 8.1 million expected for July. At the same time, Factory Orders data is expected to jump out of contraction by 3.3% in June to a positive 4.7% in July.
- Equities are selling off on the back of the Nvidia subpoena. In Japan, both the Nikkei and the Topix index are down nearly 4%. European equities are opening more than 1% lower on the day.
- The CME Fedwatch Tool shows a 59.0% chance of a 25 basis points (bps) interest rate cut by the Fed in September against a 41.0% chance for a 50 bps cut. Another 25 bps cut (if September is a 25 bps cut) is expected in November by 40.0%, while there is a 46.8% chance that rates will be 75 bps (25 bps + 50 bps) below the current levels and a 13.2% probability of rates being 100 (25 bps + 75 bps) basis points lower.
- The US 10-year benchmark rate trades at 3.81%, the lowest level this week.
US Dollar Index Technical Analysis: JOLTS to weigh
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, while data does not support that stance.
Looking up, the first resistance at 101.90 could easily be broken should JOLTS report come in stronger than expected. 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) holds as support, although it looks rather feeble. 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.
Source: https://www.fxstreet.com/news/us-dollar-gears-up-for-pre-nfp-data-with-jolts-ahead-202409041130