The US dollar index, having just recently dropped down to what could be a significant monthly support level at 99.67, is still having a rough go of it. Traders are eyeing the near-future US Retail Sales data, even as the index fails to break above key resistance levels. The 50-month simple moving average (SMA) at 102.05 now forms an extremely tough ceiling for the dollar. Recent economic indicators have been an uneven portrait, with job growth continuing to surprise on the upside even as it begins decelerating.
Shifting away from the household survey to the US economy’s new establishment payrolls, we created 177,000 in April. This number was well above the market’s median expectation of 130,000. We’ll take every sliver of optimism we can get when it comes to a stable economy. With a downwardly revised total of 185,000 in March, that suggests cooling in job growth. The new numbers underscore hope and concern at once as traders gauge where the dollar may be headed in the future.
Job Growth and Economic Indicators
Rather, the mixed April jobs report underscored an increasingly complex economic picture. Retreating fears in the overall economy job growth jumped way more than analysts projected, continuing a robust undercurrent. Underneath, the kinds of jobs being created tell a different story. During that time, the overall economy gained 167,000 new private sector jobs and lost 10,000 government jobs. This robust and varied job growth is a testament to continuing resilience across many sectors.
At the same time, according to the household survey, the US population increased by only 174,000 while the labor force increased by 518,000. This strong growth increased the overall labor force participation rate. It increased by 0.1 percentage points, to 62.6%. The stable unemployment rate at 4.2% reflects a labor market that is managing to absorb new entrants despite fluctuations in job creation.
Average hourly earnings had encouraging signs, up 0.2% month-on-month and 3.8% year-on-year. These wage gains suggest that while job growth may be slowing, those who are employed are seeing some benefits in their compensation.
Challenges for the USD Index
Even with such encouraging jobs numbers, the USD index has considerable challenges ahead of it. As it stands now, we have resistance at the 50-day SMA at roughly 101.92, making any recovery moves difficult and potentially messy. The ongoing fight to break above these areas of resistance may show further weakness beneath the shallow surface of the currency’s performance.
As market analysts point out, these technical indicators are a mirror to higher economic uncertainties. Failure to overcome the 50-month SMA at 102.05 underlines outlook for a period of dollar stasis. Traders are on high alert ahead of more economic data including retail sales numbers which can change the mood of the market.
Recent employment data further confuses the picture, muddying the waters on all fronts. At the same time, the Real GDP dipped 0.3% annualized in Q1, further muddying the waters of the current US economy. Such contraction not only sows doubts about future growth prospects, it creates political pressure on the Federal Reserve to change course.
Implications for Future Monetary Policy
The Federal Reserve’s response to these economic signals will be critical in shaping the dollar’s trajectory moving forward. With inflationary pressures and wage growth ongoing, there is still significant pressure on the policymaking community to stay on the dovish side. The Fed may need to weigh the recent employment strength against sluggish GDP growth when considering future interest rate adjustments.
Traders and economists alike are deeply focused on the next batch of economic indicators and what they will signal for strategies at the Federal Reserve going forward. With inflation worries still lingering and now murky employment news, the road ahead just got foggier. On this backdrop, market participants will be keenly eyeing the USD index’s performance. As they make their way through this uncharted territory, they’ll focus especially on major resistance and support levels.