The US’s record low employment growth of just 73k jobs occurred in July. This was well below the expected gain of 106,000 and a sign of a weaker-than-expected job market. This news comes along with large downward revisions to the prior months’ employment numbers. It was only last week that market analysts were warning about a too strong labor market. The employment report showed that May’s job growth was revised dramatically from 144,000 to just 19,000, while June’s figures were adjusted from 147,000 down to 14,000.
Despite this disappointing data, the U.S. dollar index (DXY) remains relatively resilient, currently sitting at 98.8 after experiencing a peak of 100 earlier in the month. Market analysts applaud that breaking above the 102 mark is very significant. In making this move the administration will be affirming a long-term reversal in the dollar’s trend. That would match up nicely with the 200-day moving average. It further aligns with the 61.8% retracement from the drop made between January and June.
The dollar’s recent performance is thus a fascinating case study in the interaction of economic fundamentals and market psychology. As such, on Friday the DXY fell by nearly 1.5%. It recovered and clawed back 0.5% of those losses by the end of the day’s trading session. In fact, the markets are still moving their hopes for Federal Reserve interest rate cuts further out. As a result, they are rolling these expected cuts further down the road. The chances of a September rate cut are now more than 90%. There’s a 47% probability that we’ll have three rate cuts under our belt by year’s end.
And it’s these latter employment figures that have them embroiled in heated discussion over the immediate future direction of U.S. monetary policy. Analysts suggest that a slowdown in U.S. consumption might lead to a similar downturn in economic performance across Europe and other global markets. This view would likely defend the dollar’s position as investors flock to a haven during turmoil in other countries’ economies.
The 50-day moving average, handily overlapped with the July lows, has been a key determinant in the dollar’s direction over the past few months. It served as resistance through mid-July, fully arresting the dollar’s prior descent. Producers and agricultural market participants should start looking to get above key resistance levels. This new move will go a long way to proving whether the dollar’s recent rise is merely a corrective rebound or a much more sustainable trend reversal.
Analysts have their eyes firmly planted on the growth of these changes. They recognized that if the dollar is able to successfully clear this major resistance around 102, a bullish scenario with growth potential up to 110 is possible. This place of mid path upward movement would indicate a significant reversal in sentiment toward the bullish. It has the potential to redetermine global currency dynamics in important ways too.