US Dollar flat with upside surprise for JOLTS and markets nervous ahead of Microsoft and Alphabet earnings
|- The US Dollar goes nowhere and sticks to its pattern of the past two weeks and remains steady.
- Traders see a surprise uptick in JOLTS on both the previous and recent number.
- The US Dollar Index is unable to break away from the 200-day SMA and remains stuck in its pattern.
The US Dollar (USD) is back to flat from its opening on Monday, and enters back to the tight area where the US Dollar Index (DXY) is moving in since two weeks. The US Dollar has seen safe haven inflows quickly abate in the US trading session as the US Defense department was quick to downplay any rumours on military interventions or retaliation against Iran or Houthi rebels after three US military personnel got killed in a drone attack on a US base in Jordan. The US Dollar Index could get stuck in a range trade again towards Wednesday for the US Federal Reserve’s first rate decision of 2024.
On the economic front, a perfect appetiser before the main events on Wednesday and Friday came in the form of the US JOLTS Job Openings. With an upward revision for the previous number and a December number back above 9 million, the job market is still flooded with vacancies and positions that are not getting filled. Although no correlation for the US Jobs Report number, this could add to the expectations build-up towards Friday.
Daily digest market movers: Jobs not getting filled
- The US Redbook Index has softened a touch by heading from 5.2% to 5%.
- The Case-Shiller Housing Data has been released with a solid uptick:
- The yearly Home Price Index for November went from 4.9% to 5.4%.
- The monthly House Price Index for November remained stable at 0.3%.
- The JOLTS Job Openings for December saw an upward revision from previous 8.79 million to 8.925 million for October. The November number comes in at 9.026 million. A surprising uptick which means that companies are still recruiting.
- The US Consumer Confidence for January went from a revised 108 (previous 110.7) to 114.8. The highst number since December 2021.
- Equity markets are mildly positive with most European indices up around 0.50%. US equity futures are nervous in the red, awaiting Microsoft and Alphabet after the US closing bell.
- The CME Group’s FedWatch Tool shows that markets are pricing in a 97.9% possibility for an unchanged rate decision on Wednesday, with a slim 2.1% chance of a cut.
- The benchmark 10-year US Treasury Note trades near 4.09% and is the main driver for the US Dollar Index being unable to run away from current levels.
US Dollar Index Technical Analysis: DXY in the run up to Fed
The US Dollar Index (DXY) had traders at the edge of their seats, seeing if it was finally possible that the US Dollar was able to shun from those two important moving averages: the 55-day (103.06) and the 200-day (103.53) Simple Moving Average (SMA). The safe-haven inflow quickly abated after the US Defense issued statements to confirm it would not seek confrontation in the region after three US military were killed in a drone strike on a US base in Jordan. Meanwhile US equities are holding their breath for big tech earnings this week, as neither a sell-off nor a rally is unfolding at the moment, and no clear risk on or risk off is in play.
In case the DXY is able to run further away from the 200-day SMA, more upside is in the tank. Look for 104.36 as the first resistance level on the upside, in the form of the 100-day SMA. If that gets breached as well, nothing will hold the DXY from heading to either 105.88 or 107.20 – the high of September.
With the repetition of another break above the 200-day SMA, yet again, a bull trap could form once prices start sliding below the same moving average. This would see a long squeeze, with US Dollar bulls being forced to start selling around 103.10 at the 55-day SMA. Once below it, the downturn is open towards 102.00.
Employment FAQs
How do employment levels affect currencies?
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.
Why is wage growth important?
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.
How much do central banks care about employment?
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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