Overnight, FX markets experienced some choppiness due to mixed US data. While the ADP employment report missed estimates, causing USD softness, the subsequent release of jobless claims saw a bounce in response. However, the USD turned lower after ISM services data came in largely in line with estimates.
The upcoming Non-Farm Payrolls (NFP) report is already weighing on the USD, with Fed’s Goolsbee stating that multiple rate cuts over the next 12 months are likely. This is due to concerns about a cooling labor market and the possibility of it turning into something worse. Goolsbee also mentioned not putting too much weight on one month’s job numbers.
Investors are focusing on the NFP report, particularly on the NFP and unemployment rate. The USD is expected to remain sensitive to job data this week as the Fed’s focus has shifted towards supporting the labor market. A stronger-than-expected NFP print and lower-than-expected unemployment rate could lead to dovish bets unwinding and support for the USD. Conversely, a weaker report could raise concerns about a cooling labor market, impacting market sentiments and potentially leading to risk-off trades.
In the case of data coming in largely in line with estimates, it would be seen as a neutral outcome, supporting the soft landing story. This scenario could lead to a relief rally in US equities and the USD reverting back to trading near its lows. This outcome would likely be the least disruptive to markets. The DXY is currently at 101, with daily momentum showing mild bullishness, although RSI has fallen. Support levels are at 100.50, with a break potentially leading to support at 99.60. Resistance levels are at 101.70 and 102.20.
In conclusion, the FX markets are experiencing volatility due to mixed US data and the upcoming NFP report. The USD is sensitive to job data as the Fed focuses on supporting the labor market. Investors are closely watching for any deviations from expectations in the NFP report, which could impact dovish bets and the overall sentiment in the market. A scenario where data aligns with estimates would be seen as a neutral outcome, leading to a potential relief rally in equities and the USD. It is essential for traders to monitor key support and resistance levels to navigate the current market conditions successfully.
