- DXY index trades near 105.15 with mild gains.
- US government bond yields are rising, rebounding from multi-week lows.
- The economic docket had no relevant high-tier reports to offer on Monday.
- Chair Powell will be on the wires on Wednesday.
The US Dollar (USD) traded flat on Monday, and the DXY index stands near 105.15, cushioned by a sour market mood and rising US bond yields. For the rest of the week, investors will put an eye on Chair Powell’s speech on Wednesday to get further clues on the next Federal Reserve meeting in December.
The labor market in the United States showed signs of cooling down after the October Nonfarm Payrolls report last Friday, which made investors practically take off the table an additional hike by the Fed in 2023. That being said, the bank will receive two additional inflation readings and a jobs report before the last meeting of the year. Incoming data will continue refining the model for market expectations.
Daily Digest Market Movers: US Dollar losses limited by recovering yields
- The US Dollar Index stands with mild gains at 105.15.
- The Greenback saw sharp losses on Friday after the US Nonfarm Payrolls report.
- The US Bureau of Labor Statistics reported that the Nonfarm Payrolls from October came in lower than expected. The US added 150,000 jobs in October vs the expected 180,000 and decelerated from its revised previous figure of 297,000.
- The Unemployment Rate came in at 3.9% in October, above the expected 3.8% and accelerated compared to its previous reading of 3.8%.
- Average Hourly Earnings increased by 0.2% MoM but rose 4.1% YoY, higher than the expected 4% and its previous reading of 4.3%.
- After reaching multi-week lows, the 2-year rate increased to 4.90%, while the longer-term 5 and 10-year rates rose nearly 4.57% and 4.64%, which seems to be limiting the downside for the USD.
- According to the CME FedWatch Tool, the odds of a 25-basis-point hike in December are extremely low, around 10%.
Technical Analysis: US Dollar Index bears take a breather; more downside on the horizon
Based on the daily chart, the DXY Index maintains a neutral to bearish technical perspective, suggesting that despite gaining momentum, bulls are not yet in full control. The Relative Strength Index (RSI) shows a downward trend below its midline, while the Moving Average Convergence (MACD) histogram shows bigger red bars.
What gives the outlook neutrality is the index staying below the 20-day Simple Moving Average (SMA) but above the 100 and 200-day SMAs, indicating that the bulls still have the upper hand in the broader picture.
Support levels: 104.90, 104.70, 104.50.
Resistance levels: 105.50, 105.80, 106.00.
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.
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