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Dollar Burns After NFPs Scourge Fed Forecasts, But SPX the Target

Dollar Burns After NFPs Scourge Fed Forecasts, But SPX the Target

2016-06-04 00:32:00
John Kicklighter, Chief Strategist
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Talking Points:

  • The USDollar suffered its worst single-day decline since the March 2015 Fed decision stalled its bull trend
  • Risk trends were notably restrained after the data, but the threat behind this quiet is profound
  • Keeping an eye on the Dollar momentum, it is crucial to keep track of: risk trends, oil prices and China

See how retail traders are positioning in the majors using the SSI readings on DailyFX's sentiment page.

The US Dollar plunged to close the week. Spurred by one of the largest misses in the monthly NFP payrolls report since the height of the Great Financial Crisis, the currency posted its biggest drop since March 18, 2015. That is symbolic historical reference as that was the FOMC's quarterly meeting which spurred the market to its non-ubiquitous skepticism over the central bank's stated rate path and in turn stalled the Dollar's most consistent monthly bull trend in decades.

While the payrolls miss was sizable, it doesn't single-handedly change the course of the considerable improvement in the labor market. In turn, that means the Fed could still justify a near-term hike if they so chose. However, timing may make a June hike all but impossible. With the blackout period (no communications in the week preceding a FOMC meeting) starting as of Wednesday, there are only a few speakers and data points that can dampen the dovish speculation. Chairwoman Janet Yellen is perhaps the only hope to change the market's now measly 4 percent probability of a hike come June 15 - if she even wants to moderate opinions. Hiking when the market is so certain of a hold would lead to painful volatility the Fed has fervently sought to avoid.

Monday will be a critical day for weighing the Dollar. Follow through after Friday's fireworks and Yellen's last stop to stem the premium bleed. However, we may have seen deeper course carved out in the aftermath of the surprise volatile week. Risk trends in particular is critical to keep tune with as the S&P 500 showed remarkably little response to the data - whether positive for the Fed being delayed or negative for the world's largest economy facing trouble. With the short falls of monetary policy coming into the foreground, fundamental trouble for oil and ever-present risk in China; a turn in sentiment is dangerously easy situation to find ourselves in. We look at the trading conditions ahead in this weekend's Trading Video.

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