The US dollar was the strongest of the majors on Thursday as the DXY index bounced from support at 77.50 and the markets generally remained in consolidation mode. More severe moves were seen in GBPUSD, though, following the Bank of England’s announcement that they would be expanding their quantitative easing program, as the pair tumbled over 200 points before finding support at 1.6770. This week’s big event risk for the US dollar comes on Friday at 8:30 ET when US non-farm payrolls (NFPs) is forecasted to show job losses for the nineteenth straight month in July, though the rate of decline is anticipated to slow. At the time of writing, Bloomberg News was calling for NFPs to decline by 328,000, but based on the improvements we’ve seen in leading indicators like initial and continuing jobless claims, ADP employment, and the employment component of ISM manufacturing, we expect that NFPs may prove to be better than consensus forecasts are calling for.
That said, the steady accumulation of job losses does not bode well for economic growth going forward and indicates that the unemployment rate will continue to climb, albeit at a slower pace. In fact, the July reading of the rate is projected to rise to 9.6 percent, the highest since June 1983, from 9.5 percent. Meanwhile, preliminary estimates of Q2 GDP for the US have shown a 1.2 percent drop in personal consumption, after it rose 0.6 percent in Q1 and contracted by more than 3 percent during each of the previous two quarters, suggesting that the trend in spending remains negative amidst bleak employment prospects and falling incomes.
Intraday US dollar moves will be a bit more short-sighted than that, though, as the currency is likely to only respond dramatically to a surprising result, even if it still shows that the labor market is deteriorating further. That said, with leading indicators showing that the NFPs could reflect an improvement, we need to keep what happened on June 5 in mind. Indeed, on this date, NFPs had been forecasted to plunge by 520,000, but instead, they dropped by 345,000 and sent the US dollar surging, which was unusual because that greenback had generally been gaining only when economic news was disappointing due to market-wide flight-to-safety. Now, we’re still seeing a fairly strong link between the US dollar and risk trends, but if NFPs fall by much less than 328,000, a rally in the US currency could lead EUR/USD below immediate support toward the confluence of the 50 SMA and rising trendline support at 1.4080/1.4100. On the other hand, results in line with expectations could keep EUR/USD range bound between former resistance points at 1.4340 and 1.4435, or perhaps lead the pair to break higher.
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