The USD index has been gathering momentum, inching toward what could be its best performance in 25 weeks. Despite persistent market expectations of a dovish Fed, the dollar has remained resilient, notably holding firm above the 100 level. Even a 50-basis-point cut by the Fed failed to push it lower, signaling that bearish sentiment may have run out of steam. In recent weeks, U.S. economic data has provided little justification for a significant dollar selloff, and Fed officials have consistently pushed back against overly aggressive rate cut expectations. As a result, both U.S. bond yields and the dollar have surged.
As we head into the release of the Non-Farm Payrolls (NFP) report, one question looms: how much more upside can the dollar achieve from here? With Fed fund futures still pricing in the possibility of a 50-basis-point cut by December, a solid NFP report could bolster the case for the USD while tempering rate cut expectations to 25 basis points.
USD Index Technical Analysis: On Track to Snap a 4-Week Decline
The USD index’s performance this week has been impressive, breaking a four-week losing streak and marking its best week in 25. If U.S. economic data continues to exceed expectations, the index could soon climb toward the 103 level. This rise is notable, given that we’ve already seen significant gains this week.
The index’s firm daily close above the 105.50 mark indicates strong bullish momentum. However, with four consecutive bullish candles already printed, it may take a particularly robust NFP report to drive the index even higher in the short term. Recent data suggests that NFP figures may fall short of expectations, which could result in a temporary pullback for the USD, especially if unemployment figures remain stagnant or increase.
Mixed Employment Data This Week: What It Means for NFP
The employment picture in the U.S. has been mixed heading into the NFP report. On the one hand, ADP payrolls surpassed expectations, coming in at 143,000 versus the forecast of 124,000 and the previous reading of 103,000. Historically, ADP data has provided some insight into NFP trends, so this could hint at a stronger-than-expected NFP print.
However, other employment indicators have been less encouraging. Both the ISM Services and Manufacturing employment indices contracted, falling below the 50 threshold, and came in below forecasts. Additionally, Initial Jobless Claims were slightly higher than expected, with the four-week moving average holding steady around 225,000. These data points suggest some softness in the labor market, raising questions about the strength of the upcoming NFP report.
NFP Job Growth: Fading Optimism?
Long-time market observers will recall that, historically, NFP figures have exceeded expectations more often than not. Since 2007, NFP has beaten forecasts 53.1% of the time, and this trend improved to 63.3% post-pandemic (from June 2020 onwards). However, recent trends show a different story.
Over the past three months, NFP job growth has consistently missed expectations, falling short by an average of 23,000. With consensus estimates for this report at 125,000, it wouldn’t be surprising if the final figure came in closer to 100,000, especially given recent revisions. Notably, previous NFP figures have been revised lower over the last 3, 6, and 12 months, underscoring the importance of paying attention to any potential revisions in today’s release.
As traders brace for the NFP report, the revision data could be just as critical as the headline number, especially if the September figure underperforms.
Disclaimer:
This article is for informational purposes only and does not constitute financial advice. Always conduct your own research and analysis before making any financial decisions.
