- The US Dollar is down for the fourth consecutive day this week.
- Nonfarm payrolls print stronger, though unemployment rate disappoints.
- The US Dollar Index is back below 105.00 ahead of this weekend’s French elections.
He United States Dollar (USD) The dollar is holding on to its losses this Friday and throughout the week. A four-day losing streak is simply too big for dollar bulls to salvage, even despite upbeat nonfarm payrolls numbers. This puts the dollar in a rather weak corner just ahead of the second and final round of French elections this weekend, which could lead to another slide if French President Emmanuel Macron manages to prevent a majority victory for Marie Le Pen’s far-right party on Sunday.
On the U.S. economic front, the Nonfarm Payrolls release was overshadowed by a downward revision of the previous number, from 272,000 to 218,000. The unemployment rate also rose from 4.0% to 4.1%. If that unemployment rate starts to rise consecutively over the summer, the Fed has enough reasons to start cutting in September for the first time.
Daily Market Wrap: NFP Overshadowed
- The Labour Party has won a landslide victory in the UK, and Keir Starmer is on course to become the next resident of 10 Downing Street. This outcome is increasingly strange, given the rightward movements in Europe.
- Ahead of Sunday’s French election, Marine Le Pen’s far-right National Rally party is no longer in a position to win a majority, according to recent polls.
- At 12:30 GMT, the US employment report for June was released:
- Nonfarm payrolls rose from a downwardly revised 218,000 to 206,000.
- Average hourly earnings decreased to 0.3% in June compared with 0.4% in May.
- The unemployment rate rose surprisingly from 4.0% to 4.1%.
- There was no severe volatile reaction in the market, although the US Dollar Index retreated below 105.00.
- At 15:00 GMT, the Fed’s monetary policy report will be released. This report is submitted semi-annually to the Senate Committee on Banking, Housing, and Urban Affairs and the House Committee on Financial Services.
- Asian stocks failed to close the week on a high note with both China and Japan closing lower. European stocks are doing well on the back of the UK result and are moving higher. The UK FTSE 100 even rose 1% at one point before falling back to flat ahead of the US session.
- The CME Fedwatch tool broadly supports a September rate cut despite recent comments from Fed officials. The odds now stand at 66.5% for a 25 basis point cut. A rate pause has a 27.4% probability, while a 50 basis point rate cut has a slim 6.1% chance.
- The US 10-year Treasury bond yield is trading at 4.31%, hitting a new weekly low.
US Dollar Index Technical Analysis: Cornered
The US Dollar Index (DXY) has failed to break back above the key level of 105.20, which is the 55-day Simple Moving Average (SMA). This means that the rejection from early Friday in the Asian session will see a continuation over the weekend and into the Monday open. If the outcome of the French elections favors incumbent President Emmanuel Macron, expect to see further US Dollar weakness with the DXY dropping to 104.77 and possibly even lower.
On the upside, the 55-day simple moving average (SMA) at 105.20 has now turned into resistance after an early test during the Asian session that received a firm rejection and pushed the DXY back down to test that 105.00 level. If that 55-day SMA bounces back up, 105.53 and 105.89 are the next key levels nearby. Should the Nonfarm Payrolls report turn out to be extremely strong, the red downtrend line on the chart around 106.23 and the April peak at 106.52 could come into play.
On the downside, the risk of a dive is increasing, with double support at 104.77, the confluence of the 100-day SMA and that green ascending trendline from December 2023. If that double layer gives way, the 200-day SMA at 104.44 is the guardian that should trap the DXY and prevent further declines, which could head towards 104.00 as an initial stage in the correction.
US Dollar Index: Daily Chart
The feeling of risk FAQs
In the world of financial jargon, the two terms “risk-on” and “risk-off” refer to the level of risk that investors are willing to bear over the reference period. In a “risk-on” market, investors are optimistic about the future and are more willing to buy risky assets. In a “risk-off” market, investors start to “play it safe” because they are worried about the future and therefore buy less risky assets that are more certain to provide a return, even if relatively modest.
Typically, during periods of “risk appetite”, stock markets rise, and most commodities – except gold – also appreciate as they benefit from positive growth prospects. Currencies of countries that are major commodity exporters strengthen due to increased demand, and cryptocurrencies rise. In a “risk-off” market, bonds rise – especially major government bonds –, gold shines, and safe haven currencies such as the Japanese Yen, Swiss Franc and US Dollar benefit.
The Australian Dollar (AUD), Canadian Dollar (CAD), New Zealand Dollar (NZD) and minor currencies such as the Ruble (RUB) and South African Rand (ZAR) tend to rise in markets where there is “risk appetite”. This is because the economies of these currencies are highly dependent on commodity exports for growth, and these tend to rise in price during periods of “risk appetite”. This is because investors anticipate higher demand for commodities in the future due to increased economic activity.
The major currencies that tend to rise during periods of “risk aversion” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The Dollar, because it is the world’s reserve currency and because in times of crisis investors buy US government debt, which is considered safe because the world’s largest economy is unlikely to default. The Yen, because of increased demand for Japanese government bonds, since a large proportion are held by domestic investors who are unlikely to part with them, even in a crisis. The Swiss Franc, because strict Swiss banking legislation offers investors greater capital protection.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
