07 August 2020

Will NFP Lend Some Support to the Declining US Dollar?

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News shaping
the markets today

     

What’s happening: The US dollar hovered around its lowest level in two years ahead of the high-impact nonfarm payrolls report due for release today.

What happened: The US dollar has been in a tight spot of late, down sharply against all its major rivals.

The monthly NFP (nonfarm payrolls) data has historically been a major market mover in the global markets. Investors have been on the lookout for a fundamental driver to spark some momentum in the US dollar and will closely monitor the NFP report, hoping that it can curb the accelerating decline in the US dollar.

Why it matters: The weakness in the greenback has recently been in focus, with the US dollar index tumbling to its lowest level in two years. Major greenback rivals are trading near multi-month highs, with governments announcing stimulus packages to lift their economies.

Meanwhile, the US dollar has succumbed to pressure with the continuous rise in covid-19 cases in the country and lack of developments on the new stimulus.

The greenback tried to make a rebound against the euro, pound, and Australian dollar last month. The upturn did not hold, however, for an extended period and the US dollar gave back all of its gains.

The US dollar has gathered some momentum ahead of the NFP report, with the dollar index rising by 0.2% to 92.98 during the European session.

Expectations from NFP report: With the pandemic disrupting various aspects of the corporate and economic landscape, the labour market has also been challenging and unpredictable.

Four main indicators help to forecast the monthly NFP report – the ISM non-manufacturing PMI, manufacturing PMI, ADP employment and initial jobless claims data. The latest numbers of these four major indicators came in mixed. Jobless claims and non-manufacturing PMI were positive, while the other two reports disappointed.

Nonfarm payrolls are expected to decline in July, but the unemployment rate is also likely to decline.

  • The US economy, which added 4.8 million jobs in June, is expected to have added 1.58 million jobs in July.
  • The US unemployment rate is expected to decline to 10.5% in July, from June’s reading of 11.1%.

The Markets Today

     

Gold will be in focus today, after the yellow metal extended its rally for the fifth consecutive session.

Context: Gold futures climbed on Thursday, with the precious metal now heading towards its next milestone of $2,100 per ounce. Investors also await the release of the US jobs report today.

Details: Demand for precious metals has been on an uptrend recently with the pandemic delivering a big blow to global economies and investors looking for safe-haven options.

Gold and silver have climbed and reached new highs. Securities pegged to these commodities are also witnessing a strong run.

Gold recorded gains on Thursday with US lawmakers still in discussions over the fresh coronavirus relief package.

On the other hand, weekly jobless claims improved slightly, with new applications for jobless benefits declining to 1.19 million in the latest week, versus 1.44 million in the previous week.

Gold futures for December delivery climbed 1% to another record close of $2,069.40 an ounce on Thursday, notching gains for the fifth straight day. 

September silver jumped 5.6% to settle at $28.40 an ounce yesterday, after rising 3.3% on Wednesday. The white metal closed the previous session at its highest level since 2013.

What to watch: With markets expecting a mixed jobs report for July, gold is likely to remain supported today. Gold futures rose by 0.2% to $2,073 an ounce in the European session.

Investors will continue to monitor the covid-19 figures, with the total number of cases exceeding 19 million globally.

Other Markets: European indices were trading slightly lower at 8:30am GMT, with the FTSE 100, French 40 and Dax 30 index down by 0.1%, 0.4% and 0.1%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

Mexico’s inflation rate, Turkey’s gross foreign exchange reserves, Brazil’s inflation rate, car production and new vehicle registrations, Canada’s employment change, unemployment rate and Ivey PMI, Russia’s foreign exchange reserves as well as the US wholesale inventories, Baker Hughes crude oil rigs and consumer credit.

 

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