Hawkish Fed Expectations Drive USD Higher Ahead of Jobs Data
Jackson Hole Rally Continues
The US Dollar is continuing to push higher today as the fallout from Warsh’s hawkish Jackson Hole speech on Friday continues. Warsh took a firmly hawkish tone at the event warning that further Fed tightening was likely given the moves seen in inflation, putting an end to the period of uncertainty created on the back of the July FOMC where Warsh refused to commit to any forward guidance and made some confusing comments around bond yields. However, on the back of Friday’s comments, Fed rate hike expectations have risen firmly again, now back up to 70% from 35% prior, with USD lifting accordingly.
NFP & Fed Expectations
Looking ahead this week, focus is now firmly on incoming US labour market data starting with today’s ADP release, ahead of Friday’s headline NFP data-set. Today, the market is looking for the ADP to print 47k from 44k prior. Ultimately, bulls will be looking for a strong upside surprise to help service the current rally and keep sentiment bullish into Friday. Expectations for the NFP are very modest, creating plenty of room for an upside surprise which, if seen, should drive September tightening expectations higher, amplifying USD buying. Alternatively, a soft print on Friday should put September tightening expectations to bed, capping the USD for now. Indeed, with market pricing for a September hike now back around 70%, a downside surprise on Friday could spark a violent dovish repricing, leading USD firmly lower.
Technical Views
DXY
The rally in DXY has seen the index breaking back above the 99.15 level with price now close to retesting the broken bull channel lows and the 100.18 level. With momentum studies bullish, focus is on 101.91 as the higher bull target while 99.15 remains the key support level to watch.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.