FX Market View #10

The relationship between the US economy and the Dollar remains disjointed since the impact of the corona virus on domestic growth. The fiscal and monetary policies which have been implemented during the past year had clearly had a positive effect on the economy. Jobs growth and industrial production data are reflected in an economy that is clearly on the recovery; however the Dollar has struggled to consolidate on gains. Therefore when the economic data surprises on the downside the only direction for the greenback will be a selloff. This was the case when only a quarter of the expected jobs created actually materialised in April.

For a technical standpoint, the Dollar Index is maintaining its positions below the current trend line from the start of the year. Strong employment data could have seen the Dollar Index push towards the highs of the end of April, where it had stalled on numerous occasions. The Euro on the other hand recovered this week against the Dollar, and the weak employment numbers pushed the cross through the April highs. A similar scenario was experienced with the Pound as it rallied to the upper end of its recent range by the end of the week. In Asian trading the Dollar did not gain any ground against the Yen, with investors reluctant to hold the greenback on the softer US rates.

Following the disappointing Non-Farm payroll data on Friday, the market will look to other economic releases for signals of future economic growth. As a consequence, German economic sentiment index and UK GDP numbers will likely be the main focus. In the US the release of the CPI and PPI numbers for April will give a strong indication of the future intension of the FED. The US economic recovery will be brought into attention given the weak NFP numbers, and how the Fed might respond. During the first quarter of the year the booming economy lent to prospects of inflation, however concerns can be justified of US yields being driven lower.

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