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- The DXY Index is witnessing mild gains, above the 20-day SMA near 104.10.
- ADP Employment Change for November came in lower than expected; Unit Labor Costs were revised lower.
- US yields are declining, limiting the upside for the USD.
The US Dollar Index (DXY) is steadily rising, trading at 104.10 and treading close to the 20-day SMA despite softer Automatic Data Processing (ADP) jobs figures and consolidating its weekly gains. The focus is still on the Nonfarm Payrolls report, as investors will get a clearer picture of the labor market to continue placing their bets on the next Federal Reserve (Fed) decisions.
Mixed labor market data and cooling inflation signal a potentially dovish stance by the Fed, yet officials are not ruling out further tightening. This conjecture suggests a cautious but flexible approach to their monetary policy, so the incoming data is closely watched. Upcoming labor market data on Friday will play an integral role in shaping expectations for the Fed’s decisions, which could have an impact on US Dollar price dynamics.
Daily Market Movers: US Dollar holds its ground despite soft labor market figures
- The US Dollar is trading with gains, pushing above the 20-day SMA at 104.10.
- The Unit Labour Costs for Q3 was revised to -1.2%, while November’s ADP Employment Change came in lower than expected at 103K, falling short of the 130K estimate.
- Investors await key economic reports due on Friday. Nonfarm Payrolls,Unemployment Rate and Average Hourly Earnings for November will be closely monitored.
- US bond yields are declining. The 2, 5, and 10-year bonds are seen at 4.59%, 4.11%, and 4.11%, respectively, limiting the upward strength of the USD.
- Market expectations are leaning toward a no-hike decision at the December Fed meeting while also projecting potential rate cuts by mid-2024, according to the CME FedWatch Tool.
Technical Analysis: US Dollar shows bullish resilience and pushes above the 20-day SMA
The Relative Strength Index (RSI) shows a favorable bias, existing with a positive slope despite being in negative territory. This buying momentum is bolstered further by the Moving Average Convergence Divergence (MACD), which exhibits rising green bars.
That being said, the index has yet to consolidate above the 20-day Simple Moving Average (SMA) and resides below the 100-day Simple Moving Average (SMA), indicating strong selling forces are at play. However, the bulls dominate the broader time horizon as the asset operates above the 200-day SMA.
Support levels: 104.00 (20-day SMA),103.60, 103.30, 103.15
Resistance levels: 104.10, 104.40 (100-day SMA), 104.50.
Employment FAQs
Labor market conditions are a key element to assess the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and thus economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels and thus monetary policy as low labor supply and high demand leads to higher wages.
The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.
The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given its significance as a gauge of the health of the economy and their direct relationship to inflation.
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