US Dollar climbs for fifth straight day after bumper NFP jobs report

10/04/2024 20:50:23 GMT|ByJoshua Gibson

The US Dollar climbed after a bumper NFP print on Friday.
US jobs additions soared in September, with upside revisions to previous months.
Market hopes for a follow-up outsized rate cut in November were shattered by jobs growth.

The US Dollar (USD) Index (DXY) climbed into a fifth consecutive bullish day on Friday, driven higher by better-than-expected US Nonfarm Payrolls figures. A firm showing for US jobs gains and an easing in the US Unemployment Rate have hobbled market expectations for a repeat double-cut from the Federal Reserve (Fed) in November.

The US Unemployment Rate dropped back to 4.1% from the previous 4.2%, further reinforcing a healthier-than-expected landscape in the US labor market. In addition, several months’ worth of NFP releases saw healthy upside revisions. August’s previous NFP total was lifted by an additional 17K, while July’s figure rose sharply by 55K, bringing the total up to 144K.

Annual wage growth also firmed up in September, rising 4.0% YoY from the previous 3.9%. Investors had expected September’s Average Hourly Earnings growth to ease back to 3.8%. With wages and net jobs additions blowing well past expectations across the board, rate market expectations of a higher pace of rate cuts have taken a huge hit to round out a middling-at-best trading week.

According to the CME’s FedWatch Tool, rate trader expectations for the Fed’s November rate call plummeted post-NFP; rate futures speculators now see a 95% chance that the Fed will trim rates by a modest 25 bps on November 7, with the last 5% betting on no movement at all on the Fed funds rate.

US Dollar price forecast

The Dollar Index (DXY) has been strong lately, breaking through important levels and going above 102.00. It has tested the 50-day Exponential Moving Average (EMA) at 101.90, which could be a significant barrier.

The recent price movement suggests a possible short-term recovery from the earlier downward trend. The next important resistance is the 200-day EMA at around 103.41. If the index breaks above this level, it could confirm a change in the overall trend.

Since hitting its lowest point in September, the index has been making higher lows, showing a change in market sentiment in favor of the dollar. If this continues, the DXY could aim for the 103.50-104.00 range, where the 200-day EMA is a major hurdle.

If it doesn't break the 50-day EMA, the index may consolidate or go back down to around 101.00, with more support at 100.50.

The Dollar Index seems to be recovering, with the 50-day and 200-day EMAs as important barriers. Breaking above 103.50 could mean a longer period of growth, while failing to do so could result in going back down to around 101.00.

DXY daily chart

Economic Indicator

Nonfarm Payrolls

The Nonfarm Payrolls release presents the number of new jobs created in the US during the previous month in all non-agricultural businesses; it is released by the US Bureau of Labor Statistics (BLS). The monthly changes in payrolls can be extremely volatile. The number is also subject to strong reviews, which can also trigger volatility in the Forex board. Generally speaking, a high reading is seen as bullish for the US Dollar (USD), while a low reading is seen as bearish, although previous months' reviews and the Unemployment Rate are as relevant as the headline figure. The market's reaction, therefore, depends on how the market assesses all the data contained in the BLS report as a whole.

Why it matters to traders?

America’s monthly jobs report is considered the most important economic indicator for forex traders. Released on the first Friday following the reported month, the change in the number of positions is closely correlated with the overall performance of the economy and is monitored by policymakers. Full employment is one of the Federal Reserve’s mandates and it considers developments in the labor market when setting its policies, thus impacting currencies. Despite several leading indicators shaping estimates, Nonfarm Payrolls tend to surprise markets and trigger substantial volatility. Actual figures beating the consensus tend to be USD bullish.

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