This has caused the US Dollar Index (DXY) to stall above the 99.00 level. Hope for job openings is quickly evaporating. On Tuesday, the Greenback rallied and clawed back a portion of its acute losses. This reversal came after a surprising jump in job openings. Ever since then, it has fizzled out, especially as it heads towards that important psychological barrier of 100.00. This is indeed a decline in the dollar, a trend that has accelerated with the aforementioned positive data flow from the Eurozone. This foreshadows greater threats to the American dollar.
One of the major reasons for the recent swings in the dollar can be analyzed through the prism of several important economic data points. The JOLTS report reported a surprise increase in job openings in the United States. In April it hit 7.39 million, well above the market expectations of a small decline back to 7.1 million. This figure is even more impressive considering it comes on the heels of a big upward revision of the March JOLTS reading to 7.2 million. Although this was good news, offering momentary support for the Greenback, the broader economic signs pointed to a more troubling picture.
Eurozone PMI Revision Impacts Dollar
One crucial factor contributing to the Greenback’s negative pressure is the upward revision of the Eurozone Services Purchasing Managers’ Index (PMI). The Services PMI was revised higher from an initially forecasted Services PMI of 48.8 to a revised May reading of 49.7. This revision is indicative of a much more robust Eurozone services sector than had been anticipated. This created an additional upward pressure on the US dollar in the global marketplace.
What’s more, investors are looking to a wide range of economic indicators from each side of the Atlantic. The new Eurozone revisions are further signs that stability is growing in European markets. The better Services PMI raises concerns about how competitive the US dollar is rapidly becoming. This is doubly so, as the dollar flirts with that all-important 100.00 level. Market analysts will be watching forecast deflators like a hawk. They’re looking to find out whether today’s positive momentum can be sustained or whether we must prepare for more bad news.
Mixed Signals from US Employment Data
The recent JOLTS report was a ray of optimistic sunshine upon the dismal state of the US economy. This looks like a world away from what the Greenback is enduring now. In April, job openings rocketed to 7.39 million. That’s a hopeful sign that businesses are starting to really look to hire, despite the potential storm clouds on the economic horizon. That optimism might be cut short by other employment data coming in later this week.
The US ADP Employment change is projected to show a gain of 115,000 in private payrolls for May. That’s a huge leap from the far more modest growth of 62,000 in April. This report will provide a fuller picture of the employment desert. Importantly, it has the potential to influence how the market assesses the strength of the US dollar itself. The ISM Services PMI out next Tuesday is expected to reflect continued but slower growth in business activity. That gives us one more layer of complexity to the economic picture.
Overall economic indicators are continuing to raise alarms even with these positive employment trends. As the US Factory Orders report showed an even larger than expected -3.7% drop in May, well above the market forecast for a -3% decline. This sort of news leads many to question the strength of the manufacturing activity and underlying economic momentum.
Trade Uncertainty Looms Large
Former President Donald Trump’s success on the trade front has been a wash at best with key trading partners. This perpetual stagnation is creating a rising tide of uncertainty in the market. Traders are now salivating over proposals from these partners. They are indeed tense about the possible effects on foreign exchange markets and the macro-economy.
Today is the May 15 deadline for trading partners to submit their proposals. Market participants have been chewing their nails down to the quick as they await a penny to drop on these negotiations. These negotiations could determine whether we’re still getting all that value from the Greenback. More importantly, they may well determine the US economy’s fitness for overall business confidence.