As the week draws to a close, market attention is squarely on the upcoming US non-farm payroll employment report. The sluggish Dollar is in need of a catalyst from the jobs report to spark a meaningful and sustainable breakout from its recent range against major currencies.
Market expectations are set for NFP to show 180k growth o May, with the unemployment rate steady at 3.9%. Average hourly earnings are expected to increase by 0.3% mom.
Recent related economic data offers mixed signals. ISM Services employment index rose from 45.9 to 47.1, but still indicating contraction. Conversely, ISM Manufacturing employment index turned to expansion, rising from 48.6 to 51.1. ADP private employment showed a growth of only 152k. Additionally, the four-week moving average of initial jobless claims rose from 210k to 222k, suggesting some softening in the labor market.
While there may be some upside surprises in headline job growth, it is unlikely to significantly exceed expectations. The critical variable remains wage growth, which is essential for gauging underlying domestic inflation pressures, and an important factor influencing the timing of Fed’s first rate cut.
Dollar index dipped to 103.99 this week but struggled to find decisive selling momentum. Further decline is still in favor as long as 105.18 resistance holds. Fall from 106.51 is seen as developing into the third leg of the pattern from 107.34. Any downside acceleration could push DXY through 102.35 support towards 100.61.
However, strong bounce from current level followed by break of 105.18 will revive near term bullishness. Rise from 100.61 would then be ready to resume through 106.51 before reversing.
