Will USD weakness continue?
Last night in Wall Street, not just the US dollar, even the leading indices also suddenly fell from their daily peak. This weakness is seen right after worrying numbers of ADP payrolls. The US ADP National Employment is measuring the monthly change in non-farm, private employment, based on the payroll data of approximately 400,000 business clients.
According to the published data, ADP payrolls unexpectedly fell by 301,000 in January, which is the worst result since April 2020. Fast-spreading of the Omicron variant of Coronavirus is stated as the main reason. More detailed numbers show that the leisure and hospitality industry is the most suffered sector, especially after the great growth in Q4 2021. Other sectors including trade/transportation/utilities recorded a decrease of 62,000. The manufacturing sector decreased by 21,000 jobs, construction businesses lost 10,000, and financial services also saw 9,000 losing jobs.
Since the beginning of the pandemic, repeatedly we saw that ADP has lost its correlation with Final NFP numbers, therefore it does not mean that we have to wait for such a big drop in the None-Farm Payroll numbers as well. However, it means that we should be more cautious now, especially with warning signals that we heard from Fed officials such as Bullard, Bostic, Barkin, and Harker. All of them in their speeches of the last few days warned that January's labor market might "not be too good." Since the release of the ADP data, market pessimism has resurfaced. Tomorrow as the first Friday of the month, the market participants will focus on the most critical non-farm payrolls report, which is widely expected to be weaker than past months, by adding just 155,000 jobs in January. If so, therefore it will be the lowest increase since late 2020, even though the unemployment rate is expected to remain unchanged at 3.9%.
As a reaction to these data and news, the US dollar index decreased and lost ground against its baskets in USD Index. DXY decreased towards 95.78 before recovering again above the 96 mark. On the other hand, market risk is increasing, therefore it is unlikely to see the US dollar index at much lower levels. Anyway, further US dollar index movement directly depends on today's ECB and BOE meeting and tomorrow's NFP numbers.
From the technical point of view, as you can see in the bellow figure, with lowering the price, the market volume also is decreasing and signaling that bears will not have enough power to continue the trend. 96.00 is an important pivot, and above that first resistance sits at 96.47. Lower than the pivot point, we have to take care of 95.78. Breaching under this level, in the short term can put the US index a bit more under pressure.
