• The DXY Index trades with significant losses on Thursday, remaining below the 20-day SMA near 103.50.
  • Speculation emerges for a policy pivot by the BoJ after Ueda’s comments drive demand away from the USD to the JPY.
  • Investors gear up for US Nonfarm Payrolls data on Friday.

The US Dollar (USD) has been navigating turbulent waters, trading at 103.30, with significant losses registered below the 20-day Simple Moving Average (SMA). The primary drivers pushing down the Greenback include the Bank of Japan's rate hike discussions and failure to capitalize on the positive Initial Jobless Claims for the week ending December 1. 

Alongside cooling inflation, mixed labor market conditions fuel cautious optimism within the Federal Reserve (Fed), which nonetheless hints at the need for further tightening in case data justifies it. High expectations are set for the upcoming labor market data release on Friday that will shape market expectations and set the pace of USD price dynamics. 

Daily Market Movers: US Dollar Index trades lower near 103.00 on BoJ rate hike talk, eyes on NFPs

  • The DXY Index has seen losses, with the US Dollar broadly trading below the 20-day SMA near 103.50. 
  • The US Initial Jobless Claims for the week ending December 1, reported by the US Department of Labor, came out at 220K. This is slightly below the market consensus of 222K.
  • Investors await a host of economic activity reports due on Friday. These include Average Hourly Earnings for November on a yearly and monthly basis, as well as the Unemployment Rate and Nonfarm Payrolls data for November.
  • US bond yields are down across the board, with the 2-year yield at 4.60%, while both the 5-year and 10-year yields stand at 4.12%.
  • According to the CME FedWatch Tool, the market is not pricing in a hike for the December meeting. Meanwhile, rate cuts are being expected by mid-2024.
  • Regarding Bank of Japan (BoJ) Governor Ueda’s comments, the central bank explored the possibility of leaving the negative interest rate policy. He added that there are various options when the tightening cycle begins that have boosted hawkish bets on the bank, benefiting the JPY and driving demand away from the USD.

Technical Analysis: US Dollar momentum flattens, DXY loses 20-day SMA

The Relative Strength Index (RSI) is currently on a flat slope in negative territory, while the Moving Average Convergence Divergence (MACD) prints flat green bars, suggesting that the bulls are losing traction.

However, exploring the position of the DXY relating to its 20, 100 and 200-day Simple Moving Averages (SMAs), it is evident that the outlook favors buyers on the long-term trend but the sellers in the short term. As long as the index doesn’t consolidate above the 20-day SMA, more downside may be in play to retest the 200-day SMA at 103.60.

Support levels: 103.30, 103.15, 103.00.
Resistance levels:104.00 (20-day SMA), 104.40 (100-day SMA), 104.50.

Nonfarm Payrolls FAQs

What are Nonfarm Payrolls?

Nonfarm Payrolls (NFP) are part of the US Bureau of Labor Statistics monthly jobs report. The Nonfarm Payrolls component specifically measures the change in the number of people employed in the US during the previous month, excluding the farming industry.

How does Nonfarm Payrolls influence the Federal Reserve monetary policy decisions?

The Nonfarm Payrolls figure can influence the decisions of the Federal Reserve by providing a measure of how successfully the Fed is meeting its mandate of fostering full employment and 2% inflation.
A relatively high NFP figure means more people are in employment, earning more money and therefore probably spending more. A relatively low Nonfarm Payrolls’ result, on the either hand, could mean people are struggling to find work.
The Fed will typically raise interest rates to combat high inflation triggered by low unemployment, and lower them to stimulate a stagnant labor market.

How does Nonfarm Payrolls affect the US Dollar?

Nonfarm Payrolls generally have a positive correlation with the US Dollar. This means when payrolls’ figures come out higher-than-expected the USD tends to rally and vice versa when they are lower.
NFPs influence the US Dollar by virtue of their impact on inflation, monetary policy expectations and interest rates. A higher NFP usually means the Federal Reserve will be more tight in its monetary policy, supporting the USD.

How does Nonfarm Payrolls affect Gold?

Nonfarm Payrolls are generally negatively-correlated with the price of Gold. This means a higher-than-expected payrolls’ figure will have a depressing effect on the Gold price and vice versa.
Higher NFP generally has a positive effect on the value of the USD, and like most major commodities Gold is priced in US Dollars. If the USD gains in value, therefore, it requires less Dollars to buy an ounce of Gold.
Also, higher interest rates (typically helped higher NFPs) also lessen the attractiveness of Gold as an investment compared to staying in cash, where the money will at least earn interest.

Sometimes Nonfarm Payrolls trigger an opposite reaction than what the market expects. Why is that?

Nonfarm Payrolls is only one component within a bigger jobs report and it can be overshadowed by the other components.
At times, when NFP come out higher-than-forecast, but the Average Weekly Earnings is lower than expected, the market has ignored the potentially inflationary effect of the headline result and interpreted the fall in earnings as deflationary.
The Participation Rate and the Average Weekly Hours components can also influence the market reaction, but only in seldom events like the “Great Resignation” or the Global Financial Crisis.

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