US Dollar digests first disappointing job report in over a year
|- The US Dollar retreats after disappointing US job numbers.
- The last US session of the week could bring more selling pressure on the US Dollar.
- The US Dollar Index hovers near 103.00 in search of direction.
The US Dollar (USD) retreats as the US nonfarm payroll numbers fell below the estimation and fell in between the low and high projections for the number. Markets perceived the number as quite normal and takes away the shinny performance of ISM and ADP numbers on Thursday. Markets are taking a step back and question again if a secon rate hike is justified for the Fed, with T-notes dropping off their peak. Where the Greenback was already losing room earlier Friday, losses are only getting enlarged after the nonfarm payrolls number.
Traders can digest the job report and the events of this week as later today on EIA Natural gas storage numbers and Baker Hughes rig count is taking place on th economic calendar. In the aftermath of the nonfarm payrolls, the Greenback has fully retreated against most common currencies with only some gains against the Indian Rupee. All other majors currencies are up against the Greenback which is accelerating losses now as the US opening bell is set to ring.
Daily digest: US Dollar loses its shine
- China mulls to hold more local bond asles in order to support and alleviate risky hidden debt. Hong Kong meanwhile will ease some mortgage rules in order to boost the housing market.
- Main data point for this Friday was from the US Bureau of Labor Statistics with the US Nonfarm Payroll number print for June which fell in the expected range between the highest and lowest estimation at 209,000 from 339,000 where 230,000 was expected. The payrolls number confirms the small uptick in jobless numbers and the drop below 10 million in Jolts job openings. This makes it most difficult as the hourly wage jumps from 0.3% to 0.4% and thus underpins inflation forces, not seeing them abating.
- US Treasury Secretary Janet Yellen said in Beijing that the US seeks to diversify, not decouple with China. Any US security measures are activated to protect national security, not to gain an economic edge on China.
- Another red day for Asian equities, with the Japanese Topic down 0.97% and the Hang Seng losing 0.90%. European equities have changed the tone and are up in the green by near 0.50%. A similar pattern can be seen for US equity futures, which are trading still at marginal losses, though off the lows intraday.
- The CME Group FedWatch Tool shows that markets are pricing in a 89.9% chance of a 25 basis points (bps) interest-rate hike on July 26. Chances of a second hike in November are up 36.7% at the moment. So no full conviction just yet, though probabilities are rising.
- The benchmark 10-year US Treasury bond yield trades at 4.05% with most part of the European session is behind us, as the milestone of 4% got broken on Thursday with a peak at 4.08%. The 10-year rate retreats a bit after Nonfarm Payrolls fell below the expectations.
US Dollar Index technical analysis: USD breaks imporant support
The US Dollar has chosen for the least inspiring option, a nosedive move as the Greenback is only trading in the green against a handfull of smaller currencies. In most major pairs like Euro (EUR/USD), Pound Sterling (GBP/USD) or Japanese Yen (USD/JPY), the US Dollar is printing losses. This of course puts the US Dollar Index in a loss, not only for today, but for the whole week and could mean more trouble into next week as an import support level has been broken now.
On the upside, look for 103.58 as the next key resistance level, which falls in line with Thursday’s high. The 200-day Simple Moving Average (SMA) at 104.73 is still quite far away. So the intermediary level to look for is the psychological level at 104.00 and May 31 peak at 104.70.
On the downside, the 55-day SMA near 102.82 got broken as it failed to support the falling knife action and should from now on be ignored as possible marker to the downside. A touch lower, 102.50 will be vital to hold from a psychological point of view. In case the DXY slips below 102.50, more weakness is expected with a full slide to 102.00 and a retest of June’s low at 101.92.
Dow Jones FAQs
What is the Dow Jones?
The Dow Jones Industrial Average, one of the oldest stock market indices in the world, is compiled of the 30 most traded stocks in the US. The index is price-weighted rather than weighted by capitalization. It is calculated by summing the prices of the constituent stocks and dividing them by a factor, currently 0.152. The index was founded by Charles Dow, who also founded the Wall Street Journal. In later years it has been criticized for not being broadly representative enough because it only tracks 30 conglomerates, unlike broader indices such as the S&P 500.
What factors impact the Dow Jones Industrial Average?
Many different factors drive the Dow Jones Industrial Average (DJIA). The aggregate performance of the component companies revealed in quarterly company earnings reports is the main one. US and global macroeconomic data also contributes as it impacts on investor sentiment. The level of interest rates, set by the Federal Reserve (Fed), also influences the DJIA as it affects the cost of credit, on which many corporations are heavily reliant. Therefore, inflation can be a major driver as well as other metrics which impact the Fed decisions.
What is Dow Theory?
Dow Theory is a method for identifying the primary trend of the stock market developed by Charles Dow. A key step is to compare the direction of the Dow Jones Industrial Average (DJIA) and the Dow Jones Transportation Average (DJTA) and only follow trends where both are moving in the same direction. Volume is a confirmatory criteria. The theory uses elements of peak and trough analysis. Dow’s theory posits three trend phases: accumulation, when smart money starts buying or selling; public participation, when the wider public joins in; and distribution, when the smart money exits.
How can I trade the DJIA?
There are a number of ways to trade the DJIA. One is to use ETFs which allow investors to trade the DJIA as a single security, rather than having to buy shares in all 30 constituent companies. A leading example is the SPDR Dow Jones Industrial Average ETF (DIA). DJIA futures contracts enable traders to speculate on the future value of the index and Options provide the right, but not the obligation, to buy or sell the index at a predetermined price in the future. Mutual funds enable investors to buy a share of a diversified portfolio of DJIA stocks thus providing exposure to the overall index.
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