Strong NFP Results

The US Dollar is starting the week on a softer footing, retracing against the sharp rally we saw on Friday in response to a bumper set of US labour market indicators. The headline NFP print for October came in at 165k vs 65k expected, up sharply from the prior month’s 39k reading which was itself revised higher to 60k. Alongside the headline beat, the unemployment rate was seen falling to 4.1%, down from the prior and expected 4.2% reading while wages growth rose to 0.4% from the prior and expected 0.3% level. In all, it was three strong results in the release. USD pushed higher accordingly as market pricing for a Fed hike in December jumped to above 80% from around 70% prior to the release. Tomorrow’s US CPI will be the next data focal point for traders with tightening expectations likely to rise further if we see strength in inflation readings.  

Stock Market Turmoil

So, with strong data and a rise in tightening expectations, why the sell off today then? The lack of upside follow through is likely a reflection of the Dollar rally being a little strained at these levels given the push higher we saw through Q3. Additionally, recent market turmoil linked to fears for the AI space are also weighing on USD and with stock markets holding near lows after last week’s heavy declines, there is still plenty of uncertainty. If we see selling resume this week, USD could be pulled lower again as traders mull the prospect of a fresh Fed hike against heavy stock market losses.

Technical Views

DXY

For now, the index remains anchored around the 101.91 level with price still correcting lower from the YTD highs above 102.500 in October. While the bull channel lows hold, focus is on a fresh push higher and a continuation towards the 103.20 level next. If we break lower, 101.12 is the first support zone to watch.