Forex Today: US data sustains Dollar strength, focus shifts to inflation

After the release of US labor data, the focus turns to inflation data and the FOMC minutes. These upcoming data points are expected to spur movements in the bond market and potentially challenge the dollar's strength.

Here is what you need to know for next week: 

The US Dollar Index (DXY) continued its correction on Friday, despite the better-than-expected US employment report. The numbers triggered a rally in the Greenback, which was short-lived, suggesting some exhaustion of the rally. The DXY is set to end the week around 106.00, posting marginal losses and ending an 11-week positive streak. Although the trend remains upward, it has softened. Fundamentals still favor the Dollar, and the slide appears to be corrective in nature.

On Monday, the US market will be closed due to Columbus Day; it will also be a holiday in Canada.

The US will release wholesale inflation data on Wednesday. The Producer Price Index (PPI) is expected to rise by 0.4% in September. Later in the day, the Federal Reserve will release the minutes of its latest meeting, which will be closely watched.

Thursday will be a key day with the release of the US Consumer Price Index (CPI). The headline and core rates are expected to show a 0.3% monthly increase. A surprise with higher inflation would increase expectations of further tightening from the Federal Reserve and could lead to a stronger US Dollar and higher yields, potentially causing market concerns. Conversely, numbers below estimates could fuel risk appetite and weigh on the US Dollar. The weekly Jobless Claims report will also be closely watched, especially after the upbeat Nonfarm Payrolls.

Several Fed officials are scheduled to deliver remarks, including Vice Chair Jefferson and Logan on Monday, and Waller on Tuesday. The next FOMC decision is on November 1.

Analysts at TD Securities: 

We still think that the Fed would prefer to gather additional data before making a decision to hike rates again, particularly after the sharp trek higher in yields. With that said, we still expect the Fed to stay on hold unless the totality of the data undeniably supports the strength seen in today's jobs report. Key Fedspeak early next week will provide an update to current Fed views.

EUR/USD rose after falling for 11 consecutive weeks, gaining ground after the Nonfarm Payrolls release on Friday. The pair appears to be stabilizing, and a break above 1.0630 could strengthen the rebound. The European Central Bank (ECB) will release the minutes of its latest meeting on Thursday.

GBP/USD rose on Friday for the third day, approaching the 20-day Simple Moving Average (SMA) at 1.2260. The pair had its best week since early July. The UK's monthly GDP and Manufacturing Production data are due on Thursday.

USD/JPY remains near the critical area of 150.00, which is suspected of having triggered intervention from Japanese authorities to curb the yen's strength on Tuesday. The pair posted its highest weekly close in decades around 149.35 and remains supported by the divergence between US and Japanese bond yields.

Commodity-linked currencies were the worst performers during the week. Declines in crude oil prices, metals, and deteriorating market sentiment weighed on these currencies. However, they ended the week on a positive note, with a move that could continue into next week.

China will release trade data on Friday, which will be important for market sentiment and Antipodean currencies. The economic calendar for Australia and New Zealand is quiet for the week ahead.

AUD/USD finished the week slightly lower, hovering around 0.6390 but far from the monthly low it reached earlier. The pair returned to the previous range, and the recovery signals positive momentum for the Aussie. However, it needs to rise above 0.6500 to change the short-term outlook.

NZD/USD ended the week flat, slightly below 0.6000. It remains below the 20-day Simple Moving Average at 0.6050, an area that could be challenged next week.

Canadian data and the reversal in crude oil prices brought volatility to the Loonie. While the sharp decline in crude oil prices weighed on the currency, positive Canadian employment data boosted it. USD/CAD posted its highest weekly close since March, around 1.3660. The pair peaked at 1.3785 and pulled back sharply, increasing the risk of an extension to the downside.

Gold rebounded at the 200-week SMA and managed to stay above $1,800. On Friday, it staged a recovery, surging above $1,830. The trend is downward, but short-term momentum favors the yellow metal.