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US Dollar retreats ahead of key labor market figures – Crypto News
- The DXY Index trades with significant losses on Thursday, remaining below the 20-day SMA near 103.50.
- Speculation emerges for a policy pivot by the BoJ after Ueda’s comments drive demand away from the USD to the JPY.
- Investors gear up for US Nonfarm Payrolls data on Friday.
The US Dollar (USD) has been navigating turbulent waters, trading at 103.30, with significant losses registered below the 20-day Simple Moving Average (SMA). The primary drivers pushing down the Greenback include the Bank of Japan’s rate hike discussions and failure to capitalize on the positive Initial Jobless Claims for the week ending December 1.
Alongside cooling inflation, mixed labor market conditions fuel cautious optimism within the Federal Reserve (Fed), which nonetheless hints at the need for further tightening in case data justifies it. High expectations are set for the upcoming labor market data release on Friday that will shape market expectations and set the pace of USD price dynamics.
Daily Market Movers: US Dollar Index trades lower near 103.00 on BoJ rate hike talk, eyes on NFPs
- The DXY Index has seen losses, with the US Dollar broadly trading below the 20-day SMA near 103.50.
- The US Initial Jobless Claims for the week ending December 1, reported by the US Department of Labor, came out at 220K. This is slightly below the market consensus of 222K.
- Investors await a host of economic activity reports due on Friday. These include Average Hourly Earnings for November on a yearly and monthly basis, as well as the Unemployment Rate and Nonfarm Payrolls data for November.
- US bond yields are down across the board, with the 2-year yield at 4.60%, while both the 5-year and 10-year yields stand at 4.12%.
- According to the CME FedWatch Tool, the market is not pricing in a hike for the December meeting. Meanwhile, rate cuts are being expected by mid-2024.
- Regarding Bank of Japan (BoJ) Governor Ueda’s comments, the central bank explored the possibility of leaving the negative interest rate policy. He added that there are various options when the tightening cycle begins that have boosted hawkish bets on the bank, benefiting the JPY and driving demand away from the USD.
Technical Analysis: US Dollar momentum flattens, DXY loses 20-day SMA
The Relative Strength Index (RSI) is currently on a flat slope in negative territory, while the Moving Average Convergence Divergence (MACD) prints flat green bars, suggesting that the bulls are losing traction.
However, exploring the position of the DXY relating to its 20, 100 and 200-day Simple Moving Averages (SMAs), it is evident that the outlook favors buyers on the long-term trend but the sellers in the short term. As long as the index doesn’t consolidate above the 20-day SMA, more downside may be in play to retest the 200-day SMA at 103.60.
Support levels: 103.30, 103.15, 103.00.
Resistance levels:104.00 (20-day SMA), 104.40 (100-day SMA), 104.50.
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.
