The first full week of August has arrived, and investors are shifting their attention away from central bank commentary and towards the economic data, particularly the month's headline report.
The first major indication of just what's at stake is:
The Numbers to Watch
On Friday August 7 at 12:30 GMT the US Bureau of Labor Statistics will release the July Employment Situation report . Markets expect the payroll figure to reverse a weak June number.
Metric (June) (Forecast July)
Nonfarm Payrolls 57,000 88,000
Unemployment Rate 4.2% 4.2%
Avg Hourly Earnings YoY 3.5% 3.3%
The expected range of payroll figures falls between 50,000 and 140,000. The median forecast is for 88,000.
The DXY Technical Setup
The Dollar Index (DXY) has already sharply reversed after failing to break out of its multi-year downtrend channel, drawing focus to a critical zone. The DXY is testing a key turning point from 100.16-100.42.
A weekly close under this level would suggest a deeper correction within the yearly uptrend could unfold. The significant support lines below come in at 99.41, 98.95, and 98.85.
BBH has noted that the dollar’s recent rally may be short-lived, predicting the index could reach as low as 96.00 by year's end.
Why This Matters Now
The timing for this report couldn't be more critical, particularly following the close of the July 29th FOMC report. The FOMC meeting resulted in a 9-3 decision to stand pat but three members voted for an immediate rate increase while Chairman Warsh refused to dismiss the option for September.
The labor market is the ultimate deciding factor.
A stronger-than-expected number (>$+90K$) would reinforce the Fed’s hawkfish tendencies and could push the DXY towards resistance at 101.92, possibly inducing steep downturns for EUR/USD. Conversely, a weaker number ( <+70K$ ) could reignite talks of easing and accelerate the current Dollar sell-off; an analyst recently mentioned that we could be looking at DXY levels of 94 by New Years.
The Week Leading Up
Here's a quick rundown of the data scheduled for this week. The Employment Situation report is the climax but watch for the following:
Day Event
Monday ISM Manufacturing PMI
Wednesday JOLTS Job Openings, ADP Employment Report
Thursday ISM Services PMI
Friday Nonfarm Payrolls
Each piece of data this week will serve to paint a clearer picture of the labor market.
What It Means For You
The expectation from the markets is for a solid 88,000 payroll print with the unemployment rate holding pat at 4.2%. For dollar watchers, a deviation could easily take it either higher or lower. A weaker report is more likely to trigger a decline towards 98.95 while a stronger one might push it above resistance at 101.92.
Stay focused.
Watch the levels. The clock starts ticking to Friday.
