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Outlook: Later today we get JOLTS and all eyes will be on whether openings are falling and thus reducing the appearance of a too-tight labor market. The FT has a dandy chart with the title “less tight, not loose.”

fxsoriginal

We get the ADP tomorrow, jobless claims on Thursday, and NFP on Friday.

Until something headline-worthy shows up in the labor market data, the markets can stick to second thoughts about expectations for rate cuts having gone too far—way too far. One cut at the March meeting and second one in June?

This was always excessive. Bloomberg reports Goldman says the easing outlook is overly optimistic and JP Morgan says the Goldilocks assumptions are unrealistic. Morgan Stanley doubles down on that and predicts “stocks are heading for a rocky end to the year.” In fact, “A flat run on returns in the S&P 500 may extend into the next decade.”

For what it’s worth, if the data cooperates, we see one cut in June and possibly another in September, and no jokes about the November election, please.

Forecast: The FX market decided alongside the bond gang that two cuts by June was silly and thus both the yields and the dollar needed to push back. We hardly ever see a second—thoughts judgment like this convert into real price action so quickly and decisively. The potential for it was visible on the Friday charts but not enough to scare off the trend-followers, who got their hats handed to them yesterday.

We are probably in for some backing and filling that could go nowhere very much but in a volatile, whipsawy manner. Will the dust get settled by Friday’s payrolls? It depends on how the market chooses to interpret the labor market data this week. As we complain quite often, you can make an indeterminate m/m or y/y number appear different by turning it into a quarterly/quarterly. So, as with counting specific words in Fed minutes, the key to detecting sentiment toward the labor market will be finding those special variations on the usual data presentations.

We are inclined to think the market was so bewitched by the idea of two cuts by June that it can talk itself into that view again. This means a return to the falling dollar but not without some volatility first. 


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This morning FX briefing is an information service, not a trading system. All trade recommendations are included in the afternoon report.

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