July 2, 2021 10:13:33
Has the dollar gone too far this week? All eyes are on this afternoon’s US non-farm payrolls numbers with the data no doubt giving us direction for July and potentially answering that question. There are three more reports before the September FOMC meeting with the Jackson Hole gathering of central bankers in late August being a key date for Jerome Powell and the potential for signalling the beginning of tapering.
The consensus headline print has crept higher through the week with the better ADP and weekly initial jobless claims numbers helping bump up the forecast to 720k from 600k on Monday. Unemployment is seen at 5.6% from the prior 5.8% while focus will also be on wage growth to see if this is rising owing to labour shortages. As always, keep an eye on the revisions to the previous months, especially as April and May disappointed, averaging ‘just’ 419k. The scale and acceleration of jobs growth and its ability to sustain into the summer will dictate the speed with which the Fed will move to normalise policy.
A beat above 900k is probably needed to push the dollar further in the near term due to the recent strong advances and we may see profit taking in the greenback with a near-inline number ahead of the long 4th July holiday weekend.
NFP misses this year have generated more downside compared to the upside of a stronger report in USD. Commodity-dollars should be bought in the event of weak number and equity markets will gain a bid in this scenario as stocks will benefit from lower rates for longer as the Fed can continue to put off its tightening cycle.
GBP/USD nearing next support
BoE Governor Bailey hurt sterling yesterday by saying the bank should not over-react to the inflation spike. This saw rates markets back off their hawkish pricing of a first rate hike which had been optimistically pencilled in for May next year. In turn, cable dropped below the post-Fed lows around 1.3786/92 which becomes first resistance to any weaker than expected NFP. The 100-day SMA at 1.3950 is the next level above with 1.40 very strong resistance to a more protracted move higher if we get real disappointment in today’s report. On the flip side, blockbuster data sees this year’s March and April lows come into view around 1.3670 with the 200-day SMA at 1.3636.
AUD/USD now below key support
The aussie has suffered the most this week among the major currencies, falling 1.8%. Dollar bulls have taken AUD/USD down through the post-Fed cycle lows at 0.7476/77 so this becomes first near-term resistance. The 200-day SMA then looms above at 0.7564 which tallies with previous lows in February and April. We are currently trading on support at 0.7450 but if selling continues on the back of a bumper report, bears will target 0.7410.
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