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US Dollar flirts with narrow gain after steady Jobless Claims Report

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FXStreet in Market News 12 387723
May 2, 2024 21:09

content provided with permission by FXStreet

  • The US Dollar trades broadly sideways and even pops marginall in the green on supportive Jobless Claims release.
  • Traders took the Fed’s rate decision and rhetoric as less hawkish than feared. 
  • The US Dollar Index holds ground above 105.50 and pushes back on bearish bets.

The US Dollar (USD) is starting to push back against some bearish moves from earlier this week on Thursday, after a rollercoaster ride on Wednesday following the Federal Reserve’s (Fed) monetary policy decision. The big batch of economic data on Wednesday together with the Fed’s policy meeting and Chairman Jerome Powell’s speech was the dream scenario for an uptick in the US Dollar Index (DXY), but this scenario failed to materialize and the index fell to 105.43, near the low of this week. Although it looked for a moment that the US Dollar could weaken further, it still holds ground and is likely to stay there until the US Nonfarm Payrolls data on Friday as the next catalyst. 

On the economic data front, some appetisers ahead of the Nonfarm Payrolls print and the broader employment report on Friday. Traders can feast on the weekly Jobless Claims numbers and the Challenger Job Cuts number to look for clues if those announced layoffs during the recent earnings season are starting to weigh on the labor market. Though, nothing to be found in this Thursday’s data with both Challenger data and weekly Jobless Claims all falling very much in line of expectatoins, not pointing to any massive layoffs or unwinding of tightness in the job market. 

Daily digest market movers: Still tight

  • A substantial move on the charts in USD/JPY and EUR/JPY on Wednesday, pointing to a possible intervention again from either the Bank of Japan (BoJ) or the Ministry of Finance, though no official confirmations were issued. 
  • Kickoff this Thursday was at 11:30 GMT with the April Challenger Job Cuts report. the previous number was at 90,309 and came in for April at 64,789.
  • At 12:30 GMT, the bigger part of the data for Thursday came in:
    • Weekly Initial Jobless Claims came in stable at 208,000.
    • Continuing Claims were unchanged as well against last week’s number at 1.774 million.
    • The US Goods and Trade balance from March is to be released:
      • The Goods Trade Balance deficit was previously at $91.8 billion and fell further to 92.5 billion.
      • Goods and Services Trade Balance shrunk from a deficit of $68.9 billion to a deficit of $69.4 billion. 
      • Nonfarm Productivity growth for the first quarter of 2024 grew from 3.5% to 4.7%.
      • Unit Labor Costs jumped from 0.0% to 3.0%.
  • Near 14:00 GMT, the monthly factory orders for March are expected to increase by 1.6%, higher than the 1.4% advance seen a month earlier.
  • Equities trade mixed on Thursday morning, with European equities mildly in the red while US Futures are eking out more gains with the Nasdaq futures nearing 1%. 
  • The CME Fedwatch Tool suggests a 91.1% probability that June will still see no change to the Federal Reserve’s fed fund rate. Odds of a rate cut in July are also out of the cards, while for September the tool shows a 56% chance that rates will be lower than current levels.
  • The benchmark 10-year US Treasury Note trades around 4.61%, a touch higher from this Thursday morning. 

US Dollar Index Technical Analysis: Pushing back now

The US Dollar Index (DXY) had a roller coaster ride on Wednesday while European markets were closed for Labor Day. Despite the moves and selling pressure in the DXY, the floor at 105.50 still holds despite three failed breaks in the past two weeks. Dollar bulls are buying at these levels clearly, as support is still there. This could result in a breakout soon, with either bulls stepping away and letting the DXY drop or sellers giving up, seeing DXY shooting higher. 

On the upside, 105.88 (a pivotal level since March 2023) needs to be recovered again with a daily close above it, before targeting the April 16 high at 106.52 for a third time. Further up and above the 107.00 round level, the DXY index could meet resistance at 107.35, the October 3 high. 

On the downside, 105.12 and 104.60 should act as support ahead of the 55-day and the 200-day Simple Moving Averages (SMAs) at 104.40 and 104.10, respectively. If those levels are unable to hold, the 100-day SMA near 103.75 is the next best candidate. 

Fed FAQs

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.