Dollar Waning Heading Into US Jobs Report

NFP TALKING POINTS AND ANALYSIS

• NFP report could play a major role in manipulating Fed Chair Jerome Powell’s decision at the next interest rate announcement.
• Jobs data could be leaning towards an NFP beat.
• DXY trading at key inflection point seeking forward guidance.

USD FUNDAMENTAL BACKDROP

This upcoming Non-Farm Payrolls (NFP) report on Friday will hold key information as to the state of the US labor market as well as the upcoming Fed interest rate decision later this month. Currently, money markets are pricing in a 70% chance for a rate hike hold after Fed speakers pushed the wait and see narrative yesterday. A strong NFP release could upset the apple cart and bring back to the table a more neutral market expectation.

IMPLIED FED FUNDS FUTURES

Source: Refinitiv

Estimates are pointing to a slightly weaker print on both the NFP and unemployment figures respectively but by no means will it suggest a weakening labor market. The projected miniscule increment lower will not be enough to take away from an extremely resilient environment. Focus will also be given to the average earnings metric that has been declining steadily but remains a primary contributor to the elevated inflation backdrop in the US – considering the economy is primarily services driven.

USD ECONOMIC CALENDAR (GMT +02:00)

Source: DailyFX economic calendar

That being said, other important leading indicators will need to be taken into account including ADP employment change and the ISM manufacturing PMI release. Although the ADP figure has not been a reliable indication for NFP’s of recent, it remains a crucial input for market analysts. If we use the ADP beat as a precursor to NFP, we may yet again see actual NFP numbers exceed forecasts. In addition, strong jobless claims have supplemented the bullish rhetoric for the dollar and while manufacturing PMI’s missed estimates, the manufacturing employment reading hit its highest level since August 2022. For now, markets seem to be dismissive of these figures with the dollar on the backfoot but tomorrow will determine the short-term directional bias for the DXY.

PROSPECTIVE MARKET REACTION (USD)

TECHNICAL ANALYSIS

U.S. DOLLAR INDEX WEEKLY CHART

Chart prepared by Warren Venketas, IG

The weekly DXY chart above has price action testing the longer-term trendline resistance (black) zone. This week’s candle close will be crucial for short-term directional bias as to whether the USD can buck the downtrend and push higher towards the 105.00 psychological handle.

U.S. DOLLAR INDEX DAILY CHART

Chart prepared by Warren Venketas, IG

The daily chart shows the index to be nearing overbought levels as measured by the Relative Strength Index (RSI) and may suggest a fading dollar rally. As mentioned above, the many fundamental variables will culminate within the NFP report to round off the trading week.

Resistance levels:

• 105.00
• 104.00/Trendline resistance

Support levels:

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