The US economic statistics released yesterday disappointed investors, which caused the dollar's recovery to pause, after gaining in the past two days.
What happened?
According to yesterday's economic statistics, the number of applications for unemployment benefits fell to 881,000 against the forecast of 950,000 and revised upward to 1.011 million last week. These values turned out to be positive and allowed the dollar to continue its strengthening against all major currencies, but the published values of the purchasing managers' index for the US non-manufacturing sector from ISM for August were completely disappointing. They showed a decline from 58.1 points to 56.9 points and were worse than the forecast of 57.0 points. As a result, the US stock market fell, yield on US Treasury bonds rose and the US currency slightly declined.
Of course, investors could not ignore such news. However, the market reaction was, firstly, unclear, and secondly, it was not so negative for the US dollar.
What to expect?
The dollar lost part of its growth against the euro on Thursday, but added to the pound and to the commodity currencies – the Canadian, Australian and New Zealand dollars.
Today, the market will focus their attention to the publication of important data on employment in the non-agricultural sector of the US economy. It can be recalled that the number of new jobs in August, which the economy received in the amount of 1.4 million, is expected to be significantly lower than the July value of 1.763 million.
We believe that the markets will react negatively to a smaller number of new jobs by continuing to lower demand for company shares and for commodity assets. As for the dynamics of the dollar, it is difficult for it to grow against the main currencies even using the safe-haven currency factor in the presence of various stimulus measures that weaken it. Therefore, we expect that amid possible weaker data, volatility will increase and the dollar may slightly grow, but in general, it is likely to remain near the current levels.
If positive data is released, we expect an increase in demand for risky assets as well as a decline in the dollar after a short-term volatile swing.
Conclusions:
Nevertheless, we can expect that the dollar's strengthening will be limited and its sales will only resume after its growth to important technical levels.
Forecast of the day:
The EUR/USD pair is consolidating before the release of important data on the US labor market. If they are better than expected, the price will likely rise first to 1.1880 and then to 1.1950. Negative readings, in turn, may push the price down to 1.1785.
The GBP/USD pair is under pressure awaiting the publication of data on the number of US jobs. If they are better than the forecast, then the pair will receive support and should be bought after crossing the level of 1.33000. But negative data is likely to lead to a decline in the pair to 1.3215.