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Is the dollar index set to reverse lower?

Volatility could be lower today due to the lack of major economic releases.

The US dollar traded slightly lower during the quiet EU session on Monday as the recent uptrend might run out of steam.

The market sentiment remained cautious after Chinese government authorities established a 5% economic growth target for 2023 over the weekend as they opened the National People’s Congress for its annual session. This was one of the slowest growth rates in almost half a century, as strong movement restrictions were imposed to combat COVID-19.

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Only a little is set to happen today as the European economic agenda will contain only February Retail Sales data, while January Factory Orders from the United States will be analyzed for fresh impetus during the US session.

Labor market updates

The Bureau of Labor Statistics (BLS) will issue the Job Openings and Labor Turnover Survey (JOLTS) report for January on Wednesday, which will monitor the number of job opportunities, hires, quits, and separations throughout the month.

The predicted number of job opportunities in January is 10.6 million, down from 11 million in December. According to the most recent statistics, there are approximately two job opportunities for each job seeker, reflecting the tight labor market in the United States.

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Wednesday will also see the release of ADP’s National Employment Report, which will track the increase in private sector payrolls in February. Economists say private companies gained 185,000 jobs in February, compared to 108,000 in January.

This will set the tone for Friday’s BLS data on nonfarm payrolls for February. Analysts estimate that the United States gained 200,000 jobs last month, much less than the 517,000 jobs added in January, representing the most significant employment growth in six months. In addition, forecasts indicate that the unemployment rate will stay constant at a 53-year low of 3.4%.

Powell testifies before Senate

As part of his semiannual testimony to Congress on monetary policy, Federal Reserve Chair Jerome Powell will address the U.S. Senate Banking Committee on Tuesday and the House Financial Services Committee on Wednesday. As a result of January’s higher-than-anticipated inflation rate, Fed officials may hike interest rates more aggressively in the coming months and keep them elevated for longer.

As per fed funds futures data supplied by CME Group, traders anticipate up to four further rate rises of 25 basis points (bps) this year, resulting in a terminal fed funds rate between 5.5% and 5.75% by September.

It looks like the recent short-term uptrend is over, as the price is breaking below the lower trend line of the bullish channel. So in that scenario, we might see a decline toward 103.00 this week.

Dollar index daily chart

Dollar index daily chart, source: author´s analysis, tradingview.com

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