US Dollar consolidates near three-month highs ahead of US data
- US consolidates near three-month highs following a 3.5% rally in October.
- US JOLTS Job Openings and Consumer Confidence data will be the main attractions.
- The USD Index is on a bullish trend, with the 104.00 support area limiting downside attempts.
The US Dollar Index (DXY) consolidates near a three-month high in Tuesday’s early European session. The Greenback’s downside attempts remain limited, yet investors are wary of placing large US Dollar (USD) bets with key macroeconomic data releases ahead.
The focus on Tuesday will be on the US Consumer Confidence Index and the JOLTS Job Openings figures, which are expected to bolster the case of a solid US economy ahead of Wednesday’s Q3 GDP release.
The USD index, which measures the value of the US Dollar against the six main traded currencies, is on track to its best monthly performance in more than two years. Strong US data has forced markets to dial down expectations of a steep easing cycle by the Federal Reserve (Fed), pushing US yields higher and pushing the USD up with them.
Daily digest market movers: The US Dollar holds its ground with JOLTS jobs on focus
- US JOLTS Job Openings surprised in August with an increase to 8.05 million vacancies and is expected to have remained close to the 8 million openings in September.
- The Conference Board’s Consumer Confidence Index is seen improving to 99.5 from September’s 98.7 reading.
- These figures are likely to improve the expectations of the preliminary Q3 Gross Domestic Product (GDP) data, to be released on Wednesday. The US economy is expected to have grown at a 3% annualized pace, a strong expansion that could provide additional support to the US Dollar.
- On Friday, the Nonfarm Payrolls (NFP) report is expected to show a lower increase in employment than in the previous month. Such an outcome might cap the US Dollar’s rally.
DXY technical outlook: Upside bias remains intact
The DXY index keeps moving within a bullish channel, printing higher highs and higher lows, with 104.55 capping bulls and downside attempts limited above the 104.00 area.
The 4-hour 50 Simple Moving Average (SMA) and last week´s low, at 103.95 are holding the bears’ attempts for now, with the next target below that level at 103.40. To the upside, above 104.50, the next resistance level is at 105.20.
Employment FAQs
Labor market conditions are a key element to assess the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and thus economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels and thus monetary policy as low labor supply and high demand leads to higher wages.
The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.
The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given its significance as a gauge of the health of the economy and their direct relationship to inflation.