US Dollar remains in the red as traders keep powder dry for NFP Friday
- The US Dollar sinks over 1% against the Japanese Yen.
- Traders brace for jobless claims and Challenger Job Cuts data.
- The US Dollar Index could close above 104.00, on track to return to October levels.
The US Dollar (USD) is facing a blow from the Japanese Yen after Bank of Japan’s (BoJ) Chairman Kazuo Ueda signalled to the markets that a change in monetary policy is coming. The Bank of Japan has kept rates negative for multiple decades, though an end is appearing to be near. The result is that the Japanese Yen is up over 1.25% against the Greenback, which tips the US Dollar Index (DXY) in its turn in the red and snaps this week’s winning streak.
On the economic front, traders can further assess the healthiness of the US jobs market ahead of the actual US Nonfarm Payrolls Jobs report on Friday. If the Challenger Job Cuts Index is a thrustworthy index, it looks that the US Jobs Report will be a positive upbeat one as the number of Job Cuts for October was actually negative against the previous month by -40.8%. The Jobless Claims numbers were a snooze fest and did not move the needle at all for now.
Daily digest: Standstill begins towards NFP
- Bank of Japan’s Chairman Kazuo Ueda has hit a nerve in markets in Asian trading hours, after alluding that a change in monetary policy might be at hand in the next central bank rate decision on December 16th. Analysts are expecting that the BoJ might end its decade-long trend of negative rates.
- The Challenger Job Cuts were released. Previous was for -36,836 with now -45,510.
- Near 13:30 GMT the weekly Jobless Claims were released:
- Initial Claims went from 218,000 to 220,000.
- Continuing Jobless Claims went from 1,925,000 to 1,816,000.
- Around 15:00 GMT the lighter Wholesale Inventories are due to be released for October. Previous was -0.2% with again -0.2% expected.
- Consumer Credit Change for October will be released near 20:00 GMT with a previous outstanding credit debt of $9.06 billion. The forecast is for a decrease to $9 billion.
- Equities in Asia got hammered in early Thursday trading. Meanwhile the US opening bell is seeing the Nasdaq up over 1% with other US indices following suit.
- The CME Group’s FedWatch Tool shows that markets are pricing in a 97.7% chance that the Federal Reserve will keep interest rates unchanged at its meeting next week.
- The benchmark 10-year US Treasury Note drops to 4.14%. Yields in Europe, however, are falling even quicker and widening the gap with US Yields.
US Dollar Index technical analysis: Snooze until NFP
The US Dollar retreats firmly this Thursday in early trading, after the BoJ rattled markets with a surprise comment that might mean the end of negative rates on the island. The US Dollar drops over 1% against the Japanese Yen and in its turn is dragging the US Dollar Index (DXY) to the downside. This decline ahead of the US Jobs Report could be the window of opportunity US Dollar bulls are looking for to add to US Dollar positions.
The DXY printed a new third consecutive high on Wednesday, which is what bulls are looking for as confirmation of a winning streak. The DXY could still make it further up, should employment data trigger rising US yields again. A two-tiered pattern of a daily close lower followed by an opening higher would quickly see the DXY back above 104.28, with the 55-day and 100-day Simple Moving Averages (SMA) turned over to support levels.
To the downside, the 200-day SMA should act as support and not allow the DXY to drop below 103.56. If it fails, the lows of June make sense to look for some support near 101.92. Should more events take place that initiate further declines in US rates, expect to see a near-full unwind of the 2023 summer rally, heading to 100.82, followed by 100.00 and 99.41.
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.