US Dollar Price, News and Analysis:
- The US dollar and a dead cat bounce.
- US Labor Report, released on Friday, is now key
The US dollar bounce off last Friday’s low has seemingly come to an end with the DXY back in negative territory for the session. While the recent series of lower highs and lower lows is broken, any move higher looks likely to be short-lived. On Friday, the latest US Jobs Report will be released and while another surprise cannot be ruled out, the ongoing spread of COVID-19 in the US will surely start to weigh again on employment prospects. Last month the US Bureau of Labor Statistics said that nonfarm payroll employment rose by 4.8 million in June, beating market expectations by a wide margin, while the unemployment rate fell to 11.1%. This Friday’s report (12:30 GMT) is expected to show another 1.6 million jobs added with the unemployment rate falling to 10.5%.
Forex Fundamental Analysis – News that Matters
In the US, negotiations continue in Congress over the second COVID-19 stimulus package with the summer recess set to start on August 7. While it is likely a compromise will be found and the package passed this week, if Congress doesn’t pass the stimulus package, members will be likely called back during the one-month recess to continue negotiations.
US Treasury yields continue to hoover around multi-year and record all-time lows as the dollar printing press shows no sign of slowing down. These ultra-low yields are now attracting borrowers with Alphabet (Google) selling a multi-tranche USD10 billion package of debt yesterday. The sale was said to be three times oversubscribed with Alphabet borrowing money at record low yields.
The latest CoT report – week ending Wednesday July 29 - showed speculators continuing to short the US dollar with their bearish exposure now close to extreme levels last seen in 2011. Friday’s dead cat bounce may have been caused by traders trimming some of this exposure ahead of the weekend.
US Dollar Shorts Becoming Extreme, EUR/USD at Risk of Reversal
The daily US dollar chart suggests that any uptick will run into short-term resistance from 94.00 to the 20-dma around 94.66, while last Friday’s low at 92.51 remains initial support. The DXY has moved out of oversold territory for the first time in a month, while volatility (CCI) remains fairly consistent.
US Dollar (DXY) Daily Price Chart (January – August 4, 2020)
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