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US Dollar Outlook: NFP Report Set to Sway Fed Taper Timeline

US Dollar Outlook: NFP Report Set to Sway Fed Taper Timeline

Rich Dvorak, Analyst

US DOLLAR AWAITS NONFARM PAYROLLS DATA, FED TAPER TIMELINE

  • US Dollar front and center with volatility set to accelerate around NFP data due Friday
  • The DXY Index has been coiling between its 20-day and 50-day simple moving averages
  • USD price action to strengthen if nonfarm payrolls top forecast and fuel Fed taper risk
  • Check out the DailyFX Real Time News page for breaking market news and analysis

The US Dollar was mixed across the board of major currency pairs on Thursday. EUR/USD price action and the DXY Index finished the session flat with US Dollar strength against the Yen offset by weakness versus the Sterling and Loonie. Lack of direction is likely owed to considerable uncertainty that lies ahead for the US Dollar given event risk posed by the upcoming release of monthly jobs data and its potential impact on the Fed’s taper timeline.

Nonfarm payrolls data is scheduled to cross market wires Friday, 06 August at 12:30 GMT and will be published on the DailyFX Economic Calendar. The latest consensus forecast for July NFPs is 858K job additions on the headline figure. With a standard deviation of 156k jobs, a “good” beat and “bad” miss would likely need to see respective prints of 1,014K and 702K. Traders will likely dig a little deeper into the NFP report to scrutinize the unemployment rate and average hourly earnings as well. The unemployment rate is expected to drop from 5.9% to 5.7% and average hourly earnings are expected to grow 3.9% year-over-year.

DXY – US DOLLAR INDEX PRICE CHART: DAILY TIME FRAME (23 FEB TO 05 AUG 2021)

DXY Index Price Chart US Dollar Outlook

Chart by @RichDvorakFX created using TradingView

A better-than-expected NFP report stands spark an influx of US Dollar buying pressure as this would provide more evidence that the economy is making “substantial further progress” – the elusive goalpost for Fed tapering. Nonfarm payrolls coming in north of 1-million, for example, could motivate Fed officials to expedite their taper talks and announce a potential timeline at the Jackson Hole Symposium later this month.

This would likely correspond with a sharp move higher in Treasury yields and a considerably stronger US Dollar. On the other hand, US Dollar bulls might be disappointed if NFPs are reported below forecast or even with relatively in-line NFP data. The latter scenario could afford Fed officials with more time to discuss the scope and timing of tapering asset purchases, which in turn, stands to weigh negatively on the US Dollar.

From a technical perspective, I will be watching nearside resistance facing the DXY Index around the 92.40-price level. Eclipsing this zone also underpinning the 20-day simple moving average could clear the runway for a rip into the 93.00-handle. Technical support appears at the July swing low and 50-day simple moving average, which aligns with the bottom Bollinger Band and 38.2% Fibonacci retracement level as well.

USD PRICE OUTLOOK – US DOLLAR IMPLIED VOLATILITY TRADING RANGES (OVERNIGHT)

USD Price Chart Outlook US Dollar Implied Volatility Trading Ranges EURUSD USDJPY USDCAD

Last but not least, overnight US Dollar implied volatility readings have ticked higher in reflection of event risk surrounding the release of NFPs. USD/CAD overnight implied volatility, for example, climbed to 7.8% with the Canadian Dollar also eyeing employment data out of Canada. USD/CAD overnight implied volatility of 7.8% is above its 20-day average reading of 7.4% and ranks in the top 83rd percentile of measurements taken over the last 12-months.

Keep Reading – Canadian Dollar Outlook: USD/CAD Hinges on Oil & Yields

-- Written by Rich Dvorak, Analyst for DailyFX.com

Connect with @RichDvorakFX on Twitter for real-time market insight

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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