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US Dollar Continues Climb Ahead of Jobs Data

Matt Eidinger January 9, 2020

The US dollar extended its recent gains this morning after positive news on the trade war front and some easing of geopolitical tensions this morning as traders shift their focus to January nonfarm payrolls data scheduled for Friday.

Against the backdrop of these developments, the trade-weighted dollar index (DXY) has gained nearly a full point since the start of the week, rising to the 97.45 area Thursday.

Hitting the wire this morning are weekly jobless claims for the week ending January 4, 2020. The data, released by the US Department of Labor (DOL) indicated initial filings for unemployment insurance fell to 214,000 last week despite layoffs rising in the rust belt states of Ohio (5,309), Michigan (8,058) and Pennsylvania (6,185).

The less volatile four-week moving average moved down to 224,000 during the same time period, while continuing claims climbed to 1,803,00 for the week ending December 28, 2019.

Despite the increase from last week, the numbers demonstrate a strong finish to 2019 for the US labor market.

To confirm US labor market strength, FX markets will be intently focused on tomorrow’s US nonfarm payrolls, which were delayed by a week as a result of the holidays last week.

Market participants have forecast an increase of 160,000 jobs for December 2019. After yesterday’s ADP private sector payrolls – often a proxy for the nonfarm payrolls – rose by more than expected, a number higher than 160,000 might be possible tomorrow.

The Canadian dollar is under pressure this morning as a result of falling oil prices – the result of the US and Iran stepping back from open conflict by both pivoting sideways from head-on collision amidst a geopolitical game of “chicken” in the Middle East.

While markets have been focused on geopolitical conflict and the potential for a military confrontation between the US and Iran, the effect of recent trade developments are more important in the long run.

After more than a week of waiting for the Chinese response to President Trump’s claim that the two sides had agreed to sign a “phase one” trade deal in the White House, news finally broke overnight that Chinese Vice Premier Liu He would travel to Washington sign on China’s behalf.

However, traders should keep in mind that a phase one deal does not mean all is done. Continued cooperation between the world’s two economic superpowers will be key for the long-term health of the world economy.

Furthermore, data from the CME Group indicates only one interest rate cut is potentially on the table for 2020 – and that it is a longshot with, at best, a 50% chance the US Federal Reserve cuts the fed funds rate another 0.25% in December.

Market participants will now shift their focus to tomorrow’s labor market data as well as final reads on US consumer spending and retail sales next Wednesday and Thursday.

Matthew Eidinger
Fintech Specialist, Dealing Operations

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