The attention of the market will inevitably gyrate around the latest round of jobs data from the United States for the month of July, as the assessments from Federal Reserve officials appear to be largely based on the strength of the labour market, rather than inflation.
Evidently, the core PCE, the Fed’s favourite inflation metric, was virtually unchanged in July, failing to downtick from the 2.8% level but in the grander scheme of things is deemed as a non-threat, as it remains stable, around the bank’s 2% target and has not, yet(?) broadcasted any significant signs of reignition from the expected impact of President Trump’s tariffs.
Forecasters project that the US economy added 110k new jobs in July, lower than the prior month’s 147k, unemployment is expected to uptick by a tenth of percent and rise to the 4.2% level, whereas wage growth is seen rising by a tenth of a percent to 0.3%. Should the aforementioned expectations come to fruition, we would reasonably expect the greenback to face outflows and end its impressive 7-day winning streak, as participants will most likely increase their bets that the Fed will slash rates sooner.
Money markets are currently bracing for only one 25bps rate cut from the Federal Reserve, taking place in October, which would reduce the key policy rate to 4-4.25% by years end.
In the scenario where we observe a larger than expected cooldown in the US job creation mechanism and a significant rise in the number of unemployed individuals, odds for more cuts can be reasonably be expected and more volatile moves in FX, equity, bonds and commodities markets taking place.
Technical Analysis
DXY Chart – The dollar index extends its winning streak ahead of jobs data report
Resistance: 100.00 (R1), 101.50 (R2), 103.00 (R3)
Support: 98.80 (S1), 97.50 (S2), 96.00 (S3)
