Forex Analysis: Dollar To See Volatility on Key Data as NYSE Reopens
The US Dollar (ticker: USDOLLAR) is likely to see significant volatility tomorrow as the New York Stock Exchange reopens for trading and key forex event risk promises sharp moves on any surprises.
The Dow Jones FXCM Dollar Index continues to hold key support at 9900, which likewise represents the 50% Fibonacci retracement of the rally from October lows. Yet forex traders will put the Greenback to the test on tomorrow’s highly-anticipated US ISM Manufacturing, Chicago PMI, and ADP Employment change results.
View key event risk via our FX Economic Calendar
Dow Jones FXCM Dollar Index Trades Near Key Technical Support
Source: FXCM Trading Station Desktop
The Dollar continues to hold, but we see key downside risks for the safe-haven US currency as extremely low forex volatility levels often coincide with USD weakness. Our general strategy has been to sell Dollar rallies (buy EURUSD dips), and that continues to work relatively well.
We’ll pay particular attention to tomorrow’s forward-looking ISM Manufacturing survey and any substantive surprises in ADP Employment numbers. There is pressure on the US Federal Reserve to provide further clarity on the future of its monetary policy decisions, but the FOMC officials have made it clear that their next steps would depend on key economic data.
There are few data releases more important than US labor market reports, and ADP numbers will help clarify expectations for the Fed’s next steps. We likewise look forward to Friday’s scheduled US Nonfarm Payrolls report for the same reasons, though it is unclear whether recent natural disasters in the US Mid-Atlantic and Northeast regions will affect the timing Bureau of Labor Statistics’ data release.
Our overall Euro forecast against the US Dollar remains bullish, and further clarity on the Fed’s next steps could eliminate much of the uncertainty surrounding short-term moves. Forex traders should keep a close eye on how the US Dollar trades as the New York Stock Exchange reopens for trading tomorrow—especially following key US economic data releases.
--- Written by David Rodriguez, Quantitative Strategist for DailyFX.com
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