US Dollar Falls Despite Strong Payrolls Data - What Could Save it?
Fundamental Forecast for US Dollar: Bearish
- Dollar falls against most forex counterparts despite sharply better-than-expected Payrolls data
- A string of important US Federal Reserve speeches and US Budget Negotiations highlight risks in the days ahead
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A strong run of US economic data and a particularly positive November employment report wasn’t enough to lift the US Dollar as it fell against most major counterparts. Why is the Dollar so out of favor, and what could reverse its fortunes in the week ahead?
Market attention turns to a potentially significant string of scheduled US Federal Reserve speeches in the upcoming days, and any important shifts in rhetoric will almost definitely move the Greenback as Fed expectations continue to drive financial markets. Important economic data releases will be limited to an Advance Retail Sales report, and we’ll likewise watch for US Government commentary and actions ahead of the US legislature’s self-imposed December 13 deadline for a budget deal in the New Year.
The Dollar’s failure to rally versus the Euro and other major counterparts on a much stronger-than-expected US NFPs report suggests that traders are waiting for more obvious signal on the Fed’s next moves before bringing the Greenback off of significant lows. One thing in the way is simple: the threat of further US fiscal deadlock may act as a continued drag on further economic recovery.
In that vein we’ll keep a close eye on rhetoric from the Fed’s Lacker, Bullard, and Fisher due to speak on Monday and Tuesday—particularly as it relates to recent labor growth numbers. We’re also sure to hear from US President Obama and other government officials ahead of the budget deadline.
The US Dollar would likely surge if Fed officials hint that recent economic data has pulled forth the timetable on the so-called Taper of QE policies, but such an outcome might likewise depend on progress on US budget negotiations. Short of a breakthrough on Fed expectations and Government negotiations, the Dollar could fall to further lows. Traders should be careful of choppy price action ahead of scheduled speeches.
Technical studies suggest that the US Dollar may nonetheless rally further versus the Japanese Yen, which is one of the few currencies falling versus the Greenback. Yet the Dow Jones FXCM Dollar Index remains in a narrow consolidative range, and Friday’s price action suggests that it may test key range lows. – DR