US Dollar Looking Vulnerable Ahead of Jobs Data

Financial markets are trading very flat early on Friday as traders eagerly await the July jobs data from the US.

US Earnings the Key Component of Today’s Jobs Report

Traders are yet to buy into the Fed’s plans for another interest rate hike this year – December being the most likely date – which is hardly surprising given the data seen in the first half, particularly on the inflation front. With that in mind, while the unemployment number is likely to write the headlines and the jobs number will be the initial focus, earnings growth is key to today’s report, as well as those for the rest of the year.

Despite a number of metrics suggesting the slack in the US labour market has been significantly reduced, wage growth continues to elude the workforce, to the annoyance of the Federal Reserve. With higher wages being crucial to further progress both on the economy and its inflation target, the central bank will be hoping that the numbers start to improve, having actually softened since the start of the year.

EUR/USD – Euro in Holding Pattern Ahead of US Nonfarm Payrolls

Should we continue to see soft wage growth and inflation running well below target as a result, the Fed may be forced to delay plans on future rate hikes and instead focus on reducing its balance sheet. Given the clear desire to get interest rates closer to 3%, this is obviously a very undesirable situation, although it should be noted that the US is well ahead of others on this.

US Dollar Index Languishing at 15 Month Lows

The US dollar is continuing to languish at 15 month lows as a result of the belief that future rate increases will have to now be much slower, especially as Donald Trump has so far done little to boost the economy, as was expected. This is, of course, also a reflection of traders becoming more bullish on some of its peers as central banks elsewhere start to pivot towards a tightening position. Still the dollar index currently resides in a major support zone and a break below 92 could trigger much sharper losses.

Source – Thomson Reuters Eikon

GBPUSD Recovering After BoE Induced Selling

Yesterday’s Bank of England meeting aided the greenback against the pound, with the pair falling back close to 1.31 as traders took the view that any rate increases are once again not a near-term concern. Even still, the pound continues to look bullish against the dollar for now, unless we see a break below 1.30, at which point we could see a dollar resurgence. This would make sense if we are going to see another strong rebound off the dollar index support zone.

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Craig Erlam

Craig Erlam

Senior Currency Analyst at OANDA
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the Wall Street Journal and The Telegraph, and he also appears regularly as a guest commentator on networks including Sky News, Bloomberg, CNBC and BBC. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.