US Dollar Bounces as NFP Misses Target: Powell on Deck
US Dollar Talking Points:
- This morning’s NFP report disappointed on a number of fronts, with both the headline number and Average Hourly Earnings missing estimates. The positive from the report was a continued decline in the unemployment rate to 3.5%
- The US Dollar gained on the back of this morning’s NFP, likely owed to the low expectations ahead of the release. The day is not done yet as FOMC Chair Jerome Powell speaks at 2PM ET.
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US data continues to disappoint after a couple of negative ISM releases earlier this week led into this morning’s NFP report. And perhaps that pessimism was already well priced-in but the US Dollar has put in a bounce after this morning’s data printed below expectations, setting the stage for a speech from FOMC Chair Jerome Powell a little later today.
US Dollar 30-Minute Price Chart
On the reaction front, an interesting item remains in EUR/USD after the currency was rejected at a confluent area of resistance, taking place around the 1.1000 handle in the pair.
EUR/USD Four-Hour Price Chart
US Dollar: Q4 Reversal to Continue?
Coming into the fourth quarter and US Dollar strength remained on full display. The currency jumped up to fresh two-year-highs on the first day of Q1, finally finding some element of resistance around 10am on Tuesday morning as another disappointing manufacturing ISM report was released. This was coupled with a tweet from President Donald Trump shortly after, and rather than summarize that I’ll just leave that below.
More Bad US Data
That one-two combo of bad manufacturing numbers combined with additional focus on the matter from President Trump helped to push USD lower during Tuesday and Wednesday trade, and on Thursday, yet another worrying item was released with services ISM disappointed. This prodded sell-offs in both USD and US equities, bringing to light the possibility of a repeat of last year’s Q4.
On October 3rd of last year, FOMC Chair Jerome Powell remarked in an off-hand comment that he felt that the neutral rate was ‘a long way’ off. This was widely-inferred to mean that the FOMC had plans for continued rate hikes, and in short order markets turned-over as risk aversion went on full-display into the Christmas holiday.
The Fed even hiked in December, which only seemed to hasten the declines. It wasn’t until Fed-speak began to get more dovish that order was restored in equities, and this happened throughout Q1 and Q2 and, eventually, the Fed began to cut rates in Q3. But while doing so, Powell also said that the move was a ‘mid cycle adjustment.’ Another cut took place in September and, again, Powell refrained from committing to any additional moves of loosening.
Throughout this process the build of a rising wedge formation became rather clear, and that formation remained through the Q4 open. This is part of the reason why the forecast for USD was set to bearish in the Q4 technical forecast on the US Dollar, and this theme will remain center-stage for this afternoon’s speech with Chair Powell, set to take place at 2PM ET.
US Dollar Weekly Price Chart
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--- Written by James Stanley, Strategist for DailyFX.com
Contact and follow James on Twitter: @JStanleyFX
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.