Will NFP Be the Death Knell of the Dollar?

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Market Drivers October 4, 2019
FX Steady ahead of NFP
AU Retail Sales miss slightly
Nikkei 0.32% Dax -0.02%
UST 10Y 1.52%
Oil $52/bbl
Gold $1509/oz
BTCUSD $8138

Europe and Asia:
AU AUD Retail Sales 0.4% vs. 0.5%

North America:
USD NFP 8:30
CAD Trade Balance 8:30

It’s been a quiet night of trade in FX with majors contained in very tight ranges as markets awaited the release of today US NFP report with sentiment toward the US now highly negative.

The sharp decline in both ISM surveys this week suggested that growth in the US economy slowed markedly as the effects of the global trade war waged by the Trump administration are finally taking their toll on the US demand.

Yesterday’s ISM Non-Manufacturing report which covers more than 72% of the US economy was particularly troubling as it dropped nearly three points below the forecast. Even worse, the employment subcomponent which generally tends to be a good gauge of overall NFP data fell to within a whisker of the 50 boom/bust line suggesting that employment growth may have slowed markedly.

The forecast for today’s number is 145K and with traders already geared for a negative surprise, only a print below 100K would truly shock the market. But with most participants already forecasting a Fed rate cut the downside effect on USDJPY may be contained. The pair has already broken support at 107.00 and could test the 106.00 on a truly weak NFP print but with much of the downside priced in, for now, that figure should provide a modicum of support for the time being.

What is becoming clear by the moment is that the US growth decoupling story is clearly being refuted by the data and as markets continue to adjust for a synchronized slowdown in global growth the dollar weakness could persist into the end of the year.

Boris Schlossberg
Managing Director

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