USD Mixed as Markets Steady Ahead of Friday’s Jobs Data: What to Expect
As the USD tracks a little softer overall, trends across G10 FX remain relatively subdued. Market participants are on edge as they await Friday’s US jobs data, according to Scotiabank’s Chief FX Strategist Shaun Osborne.
Despite the calmness in broader markets, stocks are narrowly mixed and major bond markets are little changed on the session. US 10Y Treasury yields have backed up fractionally, with yields falling sharply after weak JOLTS data raised concerns about the US labor market slowing down. The Beige Book also noted flat or weaker activity across most Federal Reserve districts.
More data is expected this morning, including the ADP data and the latest weekly claims figures. While the ADP data may not always accurately predict the NFP, a weak report today could increase market anxiety ahead of the NFP release. Additionally, ISM Services data are set to be released at 10AM ET.
Overnight, Japan reported stronger than expected wage gains for July, with a 3.6% Y/Y rise in Labor Cash earnings surpassing forecasts. This has raised expectations that the BoJ will implement another mild rate increase before the end of the year.
Lower US short rates, with US2Y yields falling in response to recent developments, may weigh on the USD in the short run and potentially push the DXY index lower towards a spread-driven fair value estimate of 100.0. Short-term technical indicators suggest a downward tilt for the index, indicating that the dollar’s recent rebound may be losing steam. DXY support levels are at 100.8 and a stronger support at 100.5.
Analysis:
The current market conditions suggest a mixed outlook for the USD as investors await key economic data releases. With concerns about the US labor market and potential rate adjustments by the BoJ, volatility in the currency markets is expected. Traders should monitor upcoming data releases and technical indicators to make informed decisions about their investments and trading strategies.