US Dollar nosedives after JOLTS misses big time

US Dollar price action slides after the US opening bell.
Traders face an eventful week with the monthly US jobs report on Friday.
The US Dollar Index breaks below 104.

The US Dollar (USD) was set to start this Tuesday in the green, though the Greenback is taking a turn for the worse. Catalyst is the print of the JOLTS report that saw over 700,000 job opening evaporate over the month of July. The job market is starting to loose its tighteness and the shrink in Consumer Confidence only added more oil to the fire.

Traders will now be on edge for the US jobs report on Friday. Should that jobs report print a negative number and point to a shrinking employment with lower wages, those inflationary pressures US Federal Reserve Chairman Jerome Powell mentioned in his Jackson Hole speech could be seen fading. That would mean that the US Federal Reserve has no reason anymore to keep rates higher for longer, and could mean earlier cuts in order to have a soft landing for the economy.

Daily digest: US Dollar flips 180 degrees

The data calendar this Tuesday started at 12:55 GMT with the Redbook Index. Previous number was a 2.9% increase, and jumped to 4.2% for this week.
The Housing Price Index for June is due to come out at 13:00 GMT. A slowdown as foreseen, though still positive, from 0.7% in May to 0.3% for June. The Case-Shiller Home Price Index for the year contracted less than foreseen, from -1.7% to -1.2%, where -1.3% was expected.
The major macroeconomic datapoints for Tuesday, were e at 14:00 GMT. JOLTS missed its estimation by far as job openings dropped from 9,582,000 to 8,827,000. That is a big miss and a substantial shrinkage of demand for labor force. Add to that the Consumer Confidence decline from 117 to 106.10, and traders are getting nervous on a possible ugly US jobs report for Friday.
Later this Tuesday, the US Treasury will be tapping the markets for a 7-year Note Auction.
Jackson Hole is water under the bridge, with equities across the globe rallying firmly. The Japanese Topix is up 0.16%, while the Chinese Hang Seng is up 1.93%. European equities are rallying as well, with the FTSE 100 in London recording a 1.26% gain. US equity futures are firmly in the green
The CME Group’s FedWatch Tool shows that markets are pricing in a 78.5% chance that the Federal Reserve will keep interest rates unchanged at its meeting in September. Although it still looks like a given that the Fed will not hike, markets are starting to second-guess a little more (21.5%) if the Fed would not surprise markets with still a last quarter-point-hike.
The benchmark 10-year US Treasury bond yield trades at 4.18% after touching a new yearly high last week on Monday at 4.3618%. Investors are starting to buy into bonds, which is putting pressure on the yields to slide lower.

US Dollar Index technical analysis: there is that selling pressure

The US Dollar has been in a firm rally since mid-July, shooting for the stars particularly last week. With the Jackson Hole event out of the way, the US Dollar rally could start to slow down a touch. Some profit taking gets underway this week with the several US jobs-related data this week that are due to come out, and the big JOLTS miss is making traders nervous about staying in the Greenback.

On the upside, 104.69, the high of May 31, comes into play as the level to beat. Once that level is broken and consolidated, look for a surge to 105.00, where 105.10 (the peak of March 15) is an ideal candidate for a double top. Should the Greenback be on a tear, expect a test at 105.88 – the 2023 peak from March 8.

On the downside, several floors are likely to prevent a steep decline in the DXY. The first one is the big figure at 104.00. Though seeing the current decline, that does not look strong enough to hold. Rather look for the 200-day Simple Moving Average (SMA) at 103.14. That is a much better candidate in order to catch some profit-taking pressure and re-enter. In case it does not hold, the safety net at 102.33 comes into play, holding both the 55-day SMA and the 100-day SMA.

Central banks FAQs

What does a central bank do?

Central Banks have a key mandate which is making sure that there is price stability in a country or region. Economies are constantly facing inflation or deflation when prices for certain goods and services are fluctuating. Constant rising prices for the same goods means inflation, constant lowered prices for the same goods means deflation. It is the task of the central bank to keep the demand in line by tweaking its policy rate. For the biggest central banks like the US Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.

What does a central bank do when inflation undershoots or overshoots its projected target?

A central bank has one important tool at its disposal to get inflation higher or lower, and that is by tweaking its benchmark policy rate, commonly known as interest rate. On pre-communicated moments, the central bank will issue a statement with its policy rate and provide additional reasoning on why it is either remaining or changing (cutting or hiking) it. Local banks will adjust their savings and lending rates accordingly, which in turn will make it either harder or easier for people to earn on their savings or for companies to take out loans and make investments in their businesses. When the central bank hikes interest rates substantially, this is called monetary tightening. When it is cutting its benchmark rate, it is called monetary easing.

Who decides on monetary policy and interest rates?

A central bank is often politically independent. Members of the central bank policy board are passing through a series of panels and hearings before being appointed to a policy board seat. Each member in that board often has a certain conviction on how the central bank should control inflation and the subsequent monetary policy. Members that want a very loose monetary policy, with low rates and cheap lending, to boost the economy substantially while being content to see inflation slightly above 2%, are called ‘doves’. Members that rather want to see higher rates to reward savings and want to keep a lit on inflation at all time are called ‘hawks’ and will not rest until inflation is at or just below 2%.

Is there a president or head of a central bank?

Normally, there is a chairman or president who leads each meeting, needs to create a consensus between the hawks or doves and has his or her final say when it would come down to a vote split to avoid a 50-50 tie on whether the current policy should be adjusted. The chairman will deliver speeches which often can be followed live, where the current monetary stance and outlook is being communicated. A central bank will try to push forward its monetary policy without triggering violent swings in rates, equities, or its currency. All members of the central bank will channel their stance toward the markets in advance of a policy meeting event. A few days before a policy meeting takes place until the new policy has been communicated, members are forbidden to talk publicly. This is called the blackout period.

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