Dollar index

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.

Traders are pricing in roughly a 1-in-10 chance that the Fed leaves interest rates unchanged at its November, but it may take 4 more better-than-expected US economic reports in a row.

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 leading indicators point to a potentially better-than-expected reading in this month’s NFP report, with headline job growth potentially coming in somewhere in the 130K-200K range

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.

Judging by price action in the FX and rates markets, investors are certainly looking for a dovish rate decision. This could be in the form of a surprise 50 basis point cut, or 25 bps cut with a strong hint of at least one 50 bps cut in the remaining 2 meetings later this year. Ahead of next week’s central bank bonanza, when the Bank of England and Bank of Japan will also decide on their own monetary policies, the US dollar forecast remains bearish.

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.

USDJPY, EURUSD Outlook: Following the negative weight of the US Dollar amid a dovish Fed, leading inflation indicators are due this week that might alter the course of the DXY, USDJPY, and EURUSD.

Traders are pricing in a small, but non-zero, chance of a Fed rate hike in 2024. Those odds could grow with a couple more hotter-than-expected inflation reports.

Dollar Index was testing a key support level as focus turns to PPI inflation after a hot CPI earlier this week. US dollar was hurt by weak retail sales on Thursday, but rising import costs is inflationary. The week ahead features global PMIs among a handful of other macro data releases.

Dollar weakness is lacking fundamental justification, with the Dollar Index looking to bounce back as it tests key support, while EUR/USD is back to probe broken support at 1.0780, which could turn into resistance.

In this shortened edition of Technical Tuesday, we will get technical on the EUR/USD analysis as the pair continues to show bearish price characteristics, while the Dollar Index is continuing to push higher following robust data and hawkish Fed signals.

NFP trounces expectations at +353K vs. +185K expected. USD/JPY and bond yields jump, gold drops .Light macro events in week ahead.

Thanks to the positive risk tone across financial markets, the US dollar has struggled to hold onto its gains made in response to mostly positive data showing a resilient economy. Yet, it hasn’t sold off either, with many traders expecting the FOMC and its Chairman Jerome Powell to push back against early rate cut bets next week. For this exact reason, gold has been unable to find any lasting support, with traders happy to take quick profits in either direction.

EUR/USD is holding above the 200-day average amid improved risk appetite with Nasdaq hitting a record high. The US dollar rally pauses ahead of UoM Consumer Sentiment survey, and next week’s key events that include include the ECB rate decision, global PMIs, US GDP and core PCE price index.

The big news so far today has been centred around geopolitical risks in the Middle East after military strikes by air and sea targeted 16 Houthi positions overnight. The news sent crude oil up 2.5% and gold found haven flows to climb more than 1% to above $2050. The US dollar was finding a bit of support on haven demand after failing to hold onto its gains the day before, despite a stronger-than-expected inflation report.

Dollar gets modest boost on hot inflation, as CPI prints 3.4% y/y instead of 3.2% for December. EUR/USD holds between key 1.09 support and 1.10 resistance, supported by hawkish ECB comments.