As the Federal Reserve signals a potential rate cut in the near future, the USD has been dragged lower by the softer US payrolls report released last Friday, according to OCBC FX strategists Frances Cheung and Christopher Wong.
Focus on ISM Services Data Release Today
The non-farm payrolls (NFP) report missed estimates with only 114k jobs added compared to the expected +175k. Additionally, hourly earnings decreased to 3.6% from the previous 3.9% and the unemployment rate rose to 4.3% from 4.1%. This trend of growth fears has led to increased volatility, unwinding of carry trades, and a sell-off in equities. Geopolitical tensions have also risen following US warnings of a potential attack from Iran in response to the assassinations of top Hamas and Hezbollah leaders.
With concerns about growth and geopolitics looming, safe-haven assets are expected to be in demand while carry trades are likely to unwind further. To capitalize on this, we recommend expressing USD shorts through long positions in JPY, CHF, and gold. The US Dollar Index (DXY) was last seen at 103 levels.
Technical analysis shows that daily momentum has turned mildly bearish and the Relative Strength Index (RSI) has fallen. The outlook is skewed to the downside with resistance levels at 104.30/45 (21 and 200-day moving averages), 104.80/90 (61.8% Fibonacci retracement level), and support at 102.2 (23.6% Fibonacci level). Further resistance is seen at 103.2 (38.2% Fibonacci level) and 104 (50% Fibonacci level). Keep an eye on the ISM services data release tonight as another weak print could lead to continued downward momentum.
Analysis:
The recent developments in the US economy, including the softer payrolls report and Fed’s indication of a rate cut, have put pressure on the USD. Investors are turning to safe-haven assets like JPY, CHF, and gold, while unwinding carry trades. Geopolitical tensions add another layer of uncertainty to the market. It is crucial for investors to monitor economic data releases and geopolitical developments to make informed decisions about their portfolios.