Dollar in the Focus Today With An Important Data In Focus

This is a payroll week, and currency traders are very much on the edge, as the outcome of the economic data is very much going to impact the price of the greenback, as the Federal Reserve is closely watching the print of this economic news and their monetary policy decision is based on that.

The US dollar index has experienced some volatile months as the price action has been all over the place due to the lack of clarity on the US economic health. Many traders have been of the belief that the US economy is heading towards a soft landing— meaning less of a blow to the US economy due to the ultra high interest rates in the US. On the other hand, speculators have been holding on to their argument, which is that the US economy is not landing towards a soft landing; in fact, it is heading for a hard landing, which means that the results are brutal for the US economy due to the interest rates being at a multi-decade high. However, experts predict that the economy will eventually recover after experiencing a period of turbulence. The recovery may be slow and difficult, but it is expected to happen in the near future.

The Federal Reserve has made their position very clear, which is that they think that the performance of inflation, which was the primary reason that led them to move the interest rates where they are now— at a multidecade high—is very reasonable, meaning that the current reading of the US inflation on y/y is very decent. According to the recent US inflation data, the US inflation number CPI y/y has fallen to 2.9% from its previous handle of 3%. The Fed's desired target is 3%.

The factor that is making dollar index traders more worried is the fact that the Fed believes that the US labour market has already shown all the weakness and they do not expect any further deterioration. But according to the recent US job opening data, the opening for the US new jobs has fallen to the lowest level, which has made traders highly concerned. But they remain hopeful for a potential rebound in the near future.

Looking at things from the same lens, currency traders are keeping a close eye on the upcoming economic indicators and announcements. And it is in this element that the upcoming US NFP data, which is due tomorrow, is of high value for many traders. Given that this is considered the mother of all economic readings, it is highly important to pay attention to the influence of this number.

What is expected from this number is to come in at 164K, while the previous reading was at 114K. Looking from the 3 month average or the 6 month average lens, the bar is set low. If you focus on the last reading, the reaction that happened last month was much more extreme than anticipated. So, a similar reaction could be expected this month as well. Basically, if the actual number misses the expectations, then we could easily anticipate that the dollar index is likely to move the downside massively as market players would anticipate that the Fed will now cut the rates more aggressively.

The Euro-dollar pair would be a particularly interesting one to watch as it is going to experience higher volatility as high frequency traders who use trading VPS, like Forex VPS, for stable connections and better execution are going to be all over this higher volatility opportunity. The EUR-USD pair is currently in an uptrend, as many believe that there is more weakness to come from the Fed as the ECB has already done a few rate cuts.

To summarise, dollar index traders are concerned about labour market's weakness, as recent job opening data shows the lowest level of new job openings. However, they remain hopeful for a potential rebound. The upcoming US NFP data, considered the mother of all economic readings, is of high value for traders. If the actual number misses expectations, the dollar index could move down massively, as market players anticipate aggressive rate cuts from the Fed. The Euro-dollar pair is also expected to experience higher volatility, with high-frequency traders anticipating more weakness from the Fed.

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