The US Dollar saw a reversal in its daily gains after a weaker than expected US Nonfarm payrolls report. Despite the poor performance in nonfarm payrolls, the steady unemployment rate and an increase in hourly wages have helped to balance out the negative impact on the USD. Currently, the currency pair is testing support at 103.85, with technical indicators showing a growing bearish momentum.
The impact of the weaker-than-expected US Nonfarm Payrolls reading has led to a reversal of earlier gains in the US Dollar Index (DXY). The market has taken into consideration the impact of strikes and natural disasters such as hurricanes Helen and Milton in the final reading. Although the nonfarm payrolls showed a poor performance, the unemployment rate remaining steady at 4.1% and an increase in hourly earnings have helped to offset investor concerns about a sharp deterioration in the labor market. The focus is now on the US ISM Manufacturing PMI, expecting a minor improvement but still reflecting contraction in the sector’s business activity.
The US Dollar has seen some volatility in response to key US data. Nonfarm payrolls increased by 12K in October, falling short of market expectations. However, the steady unemployment rate and higher hourly earnings have helped to temper the negative impact. The ISM Manufacturing PMI is expected to marginally improve but still indicates contraction in the sector’s business activity. The market is pricing in a 25 bps cut by the Federal Reserve (Fed) next week, with an 85% chance of another cut in December. Investors are also being supported by the anticipation of Donald Trump winning the US presidential election and implementing an inflationary policy.
In terms of technical analysis, the DXY index is testing support at 103.85, indicating a potential trend shift. The broader bullish trend appears to be losing momentum, with technical indicators pointing towards a bearish movement. The 4-hour chart shows a bearish divergence in the Relative Strength Index (RSI) and price action capped below the 50-period Simple Moving Average (SMA). Resistance levels are seen at 104.20 and 104.63, while support is at 103.40.
The Federal Reserve plays a pivotal role in shaping monetary policy in the US. The Fed aims to achieve price stability and foster full employment by adjusting interest rates. Inflation above the Fed’s 2% target leads to interest rate hikes, making the US Dollar stronger. The Fed holds eight policy meetings a year, where the Federal Open Market Committee assesses economic conditions and makes monetary policy decisions. In times of crisis or extremely low inflation, the Fed may resort to Quantitative Easing (QE) to increase credit flow in the financial system. Quantitative tightening (QT) is the reverse process of QE and is usually positive for the value of the US Dollar.
Overall, the US Dollar has experienced some fluctuations following key US data releases. Despite a weaker than expected Nonfarm payrolls report, the currency has managed to hold steady with support from steady unemployment rates and an increase in hourly wages. The focus remains on the US ISM Manufacturing PMI and the Federal Reserve’s upcoming policy decisions. Technical indicators suggest a potential trend shift in the DXY index, with resistance and support levels identified. The role of the Federal Reserve in shaping monetary policy and the impact of Quantitative Easing and Quantitative Tightening on the US Dollar values are also key factors to consider in the current market environment.
