- The US Dollar does not get any tailwinds from market pricing in more rate hikes.
- All eyes turn to Nonfarm Payrolls data on Friday.
- The US Dollar Index hovers near 103.00 in search of direction.
The US Dollar (USD) retreats as the US nonfarm payroll numbers fell below the estimation and fell in between the low and high projections for the number. Markets perceived the number as quite normal and takes away the shinny performance of ISM and ADP numbers on Thursday. Markets are taking a step back and question again if a secon rate hike is justified for the Fed, with T-notes dropping off their peak. Where the Greenback was already losing room earlier Friday, losses are only getting enlarged after the nonfarm payrolls number.
Traders can digest the job report and the events of this week as later today on EIA Natural gas storage numbers and Baker Hughes rig count is taking place on th economic calendar. In the aftermath of the nonfarm payrolls, the Greenback has fully retreated against most common currencies with only some gains against the Indian Rupee. All other majors currencies are up against the Greenback which is accelerating losses now as the US opening bell is set to ring.
Daily digest: US Dollar not so polished
- China mulls to hold more local bond asles in order to support and alleviate risky hidden debt. Hong Kong meanwhile will ease some mortgage rules in order to boost the housing market.
- Main data point for this Friday was from the US Bureau of Labor Statistics with the US Nonfarm Payroll number print for June which fell in the expected range between the highest and lowest estimation at 209,000 from 339,000 where 230,000 was expected. The payrolls number confirms the small uptick in jobless numbers and the drop below 10 million in Jolts job openings. This makes it most difficult as the hourly wage jumps from 0.3% to 0.4% and thus underpins inflation forces, not seeing them abating.
- US Treasury Secretary Janet Yellen said in Beijing that the US seeks to diversify, not decouple with China. Any US security measures are activated to protect national security, not to gain an economic edge on China.
- Another red day for Asian equities, with the Japanese Topic down 0.97% and the Hang Seng losing 0.90%. European equities have changed the tone and are up in the green by near 0.50%. A similar pattern can be seen for US equity futures, which are trading still at marginal losses, though off the lows intraday.
- The CME Group FedWatch Tool shows that markets are pricing in a 89.9% chance of a 25 basis points (bps) interest-rate hike on July 26. Chances of a second hike in November are up 36.7% at the moment. So no full conviction just yet, though probabilities are rising.
- The benchmark 10-year US Treasury bond yield trades at 4.02% with most part of the European session is behind us, as the milestone of 4% got broken on Thursday with a peak at 4.08%. The 10-year rate retreats a bit after Nonfarm Payrolls fell below the expectations.
US Dollar Index technical analysis: USD nosedives against major currencies
The US Dollar has chosen for the last option, a nosedive move as the Greenback is only trading in the green against a handfull of smaller currencies. In most major pairs like Euro (EUR/USD), Pound Sterling (GBP/USD) or Japanese Yen (USD/JPY), the US Dollar is printing losses. This of course puts the US Dollar Index in a loss, not only for today, but for the whole week.
On the upside, look for 103.58 as the next key resistance level, which falls in line with Thursday’s high. The 200-day Simple Moving Average (SMA) at 104.73 is still quite far away. So the intermediary level to look for is the psychological level at 104.00 and May 31 peak at 104.70.
On the downside, the 55-day SMA near 102.82 got broken as it failed to support the falling knife action and should from now on be ignored as possible marker to the downside. A touch lower, 102.50 will be vital to hold from a psychological point of view. In case the DXY slips below 102.50, more weakness is expected with a full slide to 102.00 and a retest of June’s low at 101.92.
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it.
Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
Source: https://www.fxstreet.com/news/us-dollar-traders-turn-cautious-ahead-of-us-job-report-202307071000