Dollar

While one can argue the greenback has made a short-term peak, the overall dollar forecast remains positive, especially against currencies subject to increased tariff risks from Trump’s administration.

The rationale behind the US stock market rally is that Trump is seen as business-friendly and will be able to pass on his tax cuts through easily without much resistance from the democrats who have lost control of the senate.

Meanwhile, most major foreign currencies remain week, further alleviating pressure on the US dollar. The sharp decline in Chinese markets over the last couple of sessions has put some pressure on commodity currencies. Additionally, the RBNZ cut rates by 50 basis points, sending the kiwi lower.

The greenback is likely to remain on the front-foot while geopolitical risks remain elevated and ahead of the US jobs report on Friday. The latter could then determine which direction the greenback will want to take in the near-term, before the focus turns to US presidential election.

Despite the uptick in wages, this was a rather weak jobs report. Not only did the headline data show only a modest +142K rise in nonfarm jobs in August (vs. +165K expected), revisions reduced reported employment for June and July sharply - by a good 86K.

So far, we have only seen the euro show any signs of strength apart from those where interest rates are lower – JPY, CHF and CNH. The broader US dollar forecast should turn more negative once the equity markets shown signs of stabilisation light of the sharp repricing of US interest rates.

There is one more macro even left that could provide even more volatility in the markets, namely the ISM services PMI on Monday. I reckon once the equity market volatility settles, the recent weakness in US data should translate into a more widespread dollar weakness. So, I maintain a bearish dollar forecast for the week ahead, especially now that we have seen a weaker jobs report today.

The US 2-year bond yield remains support, which is capping the yield at 5% and weighed on the US dollar. And that helped AUD/USD rise for a second day ahead of a key AU CPI report.

We're seeing early signs that the US dollar rally could be losing steam and indices such as the DAX are finding stability. Whilst too early to pick out trend reversals, it does suggest that sentiment of this week is quietly changing.

At the time of writing, the US dollar has printed its smallest weekly range since September 2021 at just 69 points. And that is quite remarkable when you consider it has landed on a US inflation report week. Yet daily seasonal data has reveal January 15th to have delivered the strongest average returns and win rate for the month. And that date so happens to be this coming Monday.

Traditionally the US dollar falls into year end. But with it having fallen -5% this quarter already, has it had enough of a beating?

With the US dollar continuing to soften during Monday’s Asian trade, we now wait to see if it can help EUR/USD break above a key resistance level. But with the 200-day MA nearby for the US dollar index, it might may hit a bump in the road.

We’ve seen a slight recovery in the US dollar, but this is to be expected following such a sharp selloff heading into the weekend. But with resistance looming, USD could be setting up for a potential swing trade short over the near term.

The resilience of US data we have seen over the past couple of weeks hasn’t led to any further appreciation in interest rate expectations, keeping the dollar in an overall holding pattern with a slight bullish tilt, especially against the weaker currencies like the JPY and EUR. But the likes of the AUD and previously CHF have shown some resilience, perhaps suggesting that most of the positivity may be priced in for the greenback.

Welcome to another edition of Forex Friday, a weekly report in which we highlight selected currency themes. In this week’s report, we will focus on the US dollar analysis, and provide updates on the GBP/USD, USD/CAD and EUR/USD outlook, before looking ahead to the next week. We maintain a bearish outlook on the US dollar and would favour looking for bullish setups on high-beta currencies.

So, the US jobs data was mixed and the probability of a rate hike in September fell to 13% from about 20% prior to the data release. Correspondingly, the US dollar and bond yields fell, gold rallied, and stocks stabilised somewhat.

All eyes will turn to the US jobs report on Friday, as the market refocuses on Fed policy after the Fitch downgrade of US credit rating caused a risk off response in the markets, which sent the dollar and long-dated bond yields surging higher. The US dollar, gold and EUR/USD outlook could be impacted if we see a jobs report that deviates significantly from expectations.