DXY: Bears ahead of NFP – OCBC

Currency markets were somewhat choppy overnight amid mixed US data. ADP employment missed estimates (99K vs 145K expected), leading to USD weakness, but the subsequent release of jobless claims (227K vs 230K) saw a bounce in response. However, the USD still turned lower after ISM services data was largely in line with estimates.

NFP already weighs on the USD

“This morning, the Fed’s Goolsbee said it’s pretty clear the path isn’t just rate cuts soon, but multiple cuts over the next 12 months, as the Fed has projected in its most recent dot plot. He also cautioned that he saw “more” warning signs about the labor market slowdown and how continued weakness raises the possibility that the labor market slowdown “could turn into something worse.” That said, he also said he wouldn’t put much weight on any one month’s jobs number.”

“The focus is on the payrolls report (8:30pm SGT), in particular, the NFP and unemployment rate. The USD should remain sensitive to employment data this week given that the Fed’s focus has shifted to supporting the labor market. A much higher than expected NFP and a much lower than expected unemployment rate should see dovish bets unravel and is supportive for the USD. A much weaker report further heightens concerns about its labor market slowdown. This may undermine sentiments. Risk-off trades may pressure high beta currencies.”

“A data that is largely in line with estimates would be a neither-good-nor-bad case. This supports the soft landing story. US stocks may find a relief rally while USD may trade back near its lows. This scenario will likely be the least disruptive to markets. DXY was last at 101. Daily momentum is mildly bullish but RSI dipped. Consolidative price action ahead of data risk. Support at 100.50 levels. A decisive break puts next support at 99.60. Resistance at 101.70 (21 DMA), 102.20 (23.6% Fibonacci retracement of 2023 high to 2024 low).”