US Dollar eases further while ECB decision still ripples through markets – Crypto News – Crypto News
Connect with us
US Dollar put to the guillotine, but plenty to live on for US Dollar put to the guillotine, but plenty to live on for

others

US Dollar eases further while ECB decision still ripples through markets – Crypto News

Published

1 year ago

on

  • The US Dollar trades mixed on Friday ahead of key US economic data. 
  • Markets are still digesting the interest rate cut from the ECB ahead of the US Employment Report. 
  • The US Dollar Index dips lower and already fell below 104.00 in the early Asian session. 

The US Dollar (USD) edges lower on Friday but manages to hold above the 104.00 level ahead of the US Nonfarm Payrolls data for May. The Greenback struggles near weekly lows after the European Central Bank (ECB) delivered a 25 basis points interest rate cut on Thursday, setting the ECB rate on Deposit Facility to 3.75% from 4%. The fact that ECB’s officials gave no forward guidance on interest rates leaves markets feeling that it was a one-and-done, and dampens hopes for further easing. 

On the economic front, besides the ECB revaluation, markets are on the lookout for the US Employment Report for May, with the Nonfarm Payrolls number, monthly wage growth and unemployment rate as three main drivers. The consensus for the Nonfarm Payrolls is an increase by 185,000 after the 175,000 seen in April. The range of views varies from 120,000 on the low end to 258,000 on the upside. Most significant market movements are expected should the number come below or above the lower and higher end of the range. 

Daily digest market movers: Calm before the storm

  • At 12:30 GMT, the US Employment Report for May will be released:
    • Nonfarm Payrolls are expected to increase by 185,000 after the 175,000 additions in April.
    • Monthly Average Hourly Earnings are expected to tick up to 0.3% in May from 02.% a month before.
    • Yearly Average Hourly Earnings should remain stable at 3.9%.
    • Unemployment Rate should remain unchanged at 3.9%.
    • As always, a number that falls in line with expectations will not have a significant market impact, whereas a print below 120,000 or above 258,000 for the Nonfarm Payrolls figure will see a pickup in volatility. 
  • Equities are trading with minor losses in Asia and Europe, while US futures are gently heading into the green. 
  • According to the CME Fedwatch Tool, 30-day Fed Fund futures pricing data suggests a 31.8% chance of keeping rates unchanged in September, against a 55.7% chance of a 25 basis points (bps) rate cut and a 12.3% chance of an even 50 bps rate cut. For the upcoming meeting on June 12, markets are fully pricing that rates will remain at current levels. 
  • The benchmark 10-year US Treasury Note trades around 4.29%, near its fresh monthly low of 4.27% from Wednesday. 

US Dollar Index Technical Analysis: NFP comes at a wrong time

The US Dollar Index (DXY) is flirting with a drop below the 104.00 handle. Some brief excursions below this level have already been made in the past few days, though for now, this area still sees ample amounts of buying interest. The question is how long those buyers will last, and should NFP come in under the weakest projection, something could snap. 

On the upside, the DXY first faces a confluence resistance in the 200-day Simple Moving Average (SMA) and the 100-day SMA at 104.44. Further up, the pivotal level near 104.60 comes into play. For now, the topside can be seen around 105.00, with the 55-day SMA coinciding with this round number and the peak from recent weeks at 105.08.

On the downside, the 104.00 big figure looks to be holding. Once through there, another decline to 103.50 and even 103.00  are the levels to watch. With the Relative Strength Index (RSI) still not oversold, more downsides are still under consideration. 

Nonfarm Payrolls FAQs

Nonfarm Payrolls (NFP) are part of the US Bureau of Labor Statistics monthly jobs report. The Nonfarm Payrolls component specifically measures the change in the number of people employed in the US during the previous month, excluding the farming industry.

The Nonfarm Payrolls figure can influence the decisions of the Federal Reserve by providing a measure of how successfully the Fed is meeting its mandate of fostering full employment and 2% inflation. A relatively high NFP figure means more people are in employment, earning more money and therefore probably spending more. A relatively low Nonfarm Payrolls’ result, on the either hand, could mean people are struggling to find work. The Fed will typically raise interest rates to combat high inflation triggered by low unemployment, and lower them to stimulate a stagnant labor market.

Nonfarm Payrolls generally have a positive correlation with the US Dollar. This means when payrolls’ figures come out higher-than-expected the USD tends to rally and vice versa when they are lower. NFPs influence the US Dollar by virtue of their impact on inflation, monetary policy expectations and interest rates. A higher NFP usually means the Federal Reserve will be more tight in its monetary policy, supporting the USD.

Nonfarm Payrolls are generally negatively-correlated with the price of Gold. This means a higher-than-expected payrolls’ figure will have a depressing effect on the Gold price and vice versa. Higher NFP generally has a positive effect on the value of the USD, and like most major commodities Gold is priced in US Dollars. If the USD gains in value, therefore, it requires less Dollars to buy an ounce of Gold. Also, higher interest rates (typically helped higher NFPs) also lessen the attractiveness of Gold as an investment compared to staying in cash, where the money will at least earn interest.

Nonfarm Payrolls is only one component within a bigger jobs report and it can be overshadowed by the other components. At times, when NFP come out higher-than-forecast, but the Average Weekly Earnings is lower than expected, the market has ignored the potentially inflationary effect of the headline result and interpreted the fall in earnings as deflationary. The Participation Rate and the Average Weekly Hours components can also influence the market reaction, but only in seldom events like the “Great Resignation” or the Global Financial Crisis.

 

Related Topics:
Continue Reading
Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Trending