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  • US Dollar price action fairly contained in the aftermath of the US Jobs report. 
  • ISM Manufacturing up next to try and move the needle or paint a clearer picture.
  • The US Dollar Index is off its weekly low, though any headwind could snap the summer rally in the Greenback.

The US Dollar (USD) is trading pretty much sideways, not making any big moves, except for the Japanese Yen. The Greenback there loses nearly 0.70% after the US Jobs report print and is at a one-week low level around 144.90 USD/JPY. But overall the losses are fairly contained and are starting to be paired back in the aftermatch of the Nonfarm Payrolls change. 

Traders got a perfect summary of the earlier datapoints seen this week, represented in the Jobs report: Nonfarm Payrolls change went up 187k, and even beated last month’s print as it was revised down from 187k to 157k. So jobs were added in the month of August. It looks like the job market is thus still holding out very nicely against these elevate drates. Another hike by the Fed though starts to look doubtfull as the Average Hourly Earnings have dropped from 0.4% to 0.2% month-over-month, pointing to employers having to pay less in order to get staff hired and thus might abate any inflationary pressures. 

Daily digest: US Dollar reluctant to move

  • In the background commodities are soaring with Crude Oil on a tear. Crude is jumping higher after Kuwait and Saudi crude export numbers point to a multi-year low in exports. 
  • Senate Leader Chuck Schumer said that the focus net week will be on funding, preventing a shutdown. 
  • In Asian trading the Chinese Yuan strenghtend against the Greenback after the People’s Bank of China (PBoC) had cut the Forex Reserve Ratio by 0.02%. 
  • The US jobs report from 12:30 GMT had a few key takeaways: the Nonfarm Payrolls change was a beat of expectations and a beat of July with a revised 157k for July been beaten by 187k for August. Average Hourly Eernings against July have declined from 0.4% to 0.2%. To summarize: people are still finding a job fairly easily, though are not starting to see those higher pays or have less room to get more wage in negotiations, which means less room for spending and less inflationary pressures around the corner. 
  • Around 13:45 GMT, the S&P Global Manufacturing Purchasing Managers Index (PMI) wil be released for the month of August. Expectations are for an unchanged print at 47, which means a contractionary posture remains.
  • Final confirmation from the earlier move on the back of the US Nonfarm Payrolls will come from the ISM Manufacturing PMI for August, which is expected to head from 46.4 to 47. This amounts to a continuation within contraction territory. The Employment Index is expected to stay steady from 44.4 to 44.2 for the next month. The New Orders Index is forecast  to head from 47.3 to 46.3; and, the Prices Paid Index from 42.6 to 43.9.
  • A similar picture to Thursday unfolds in the equity markets with the Japanese Topix index closes at +0.76%. The Hong Kong Hang Seng heads lower by 0.55%. European and US equities are mildy higher but looking for direction. 
  • The CME Group’s FedWatch Tool shows that markets are pricing in an 89% chance that the Federal Reserve will keep interest rates unchanged at its meeting in September. The prior 78% probability was quickly reassessed after the downbeat data from the JOLTS report. 
  • The benchmark 10-year US Treasury bond yield trades at 4.09% and has halted its decline from earlier this week. 

US Dollar Index technical analysis: nor left, nor right… sideways

The US Dollar was not expected to make any moves until the main event this Friday – the August NFP –  and did not make any big ones after it neither. This Friday is not over yet as the ISM PMI numbers are still due to come out later and might still trigger some follow through on the mild decline in the US Dollarindex that markets are seeing currently. No real support levels are being tested or are under pressure, so a rebound and a move higher could still be possible. 

On the upside, 103.74, the high of August 31, comes into play as the level to beat in order to halt this downturn. Once that level is broken and consolidated, look for a surge to 104.00, where 104.35 (the peak of August 29) is an ideal candidate for a double top. Should the Greenback go on a tear, expect a test at 104.47 – the six-month high.

On the downside, the summer rally of the DXY is set to be broken as only one element now supports the US Dollar. That is the 200-day SMA, and it could mean substantially more weakness to come once the DXY starts trading further below it. The double belt of support at 102.38 with both the 100-day and the 55-day SMA are the last lines of defence before the US Dollar sees substantial and longer-term devaluation. 

 

Fed FAQs

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.

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