FED started its' signals?
While Initial Jobless Claims fall sharply to 385K and ADP Nonfarm Employment Change in May raised to 978K; however, the market is putting more price on tomorrow's NFP data, where we are expecting to see Nonfarm Payrolls to rebound above 600K and the unemployment rate drop 5.9%. Especially now and after yesterday's fantastic Manufacturing PMI data, the NFP number must be critical to affecting FOMC members' decisions for future monetary policies. Employment data may influence choices.
Also, ahead of May ISM non-manufacturing PMI, which expected to show another gain, this time in the services sector, as well as indicate rising wages pressure on inflation worries, earlier today positive European service PMI data with the ease in the some of the Corona virus-related limits helped the positive market sentiment, which will highlight market pricing in earlier Hawkish policy from major central banks.
Additionally, UK's services sector printed the most significant jump in its activity in 24 years last month, after pubs and restaurants were allowed to resume their indoor services.
The current signs reflect that the Fed may have begun to tighten its monetary policy gradually. Yesterday, the central bank announced that it would gradually reduce the purchase of investment-grade companies' secondary market bonds, namely SMCCF. Although the Fed speakers emphasized that this move is a "portfolio reduction" rather than a "monetary policy signal." Considering that some Fed officials have signaled that they may consider lowering QE, market participants are now feeling much closer to Fed's tightening policies.
Besides the employment and PMI data, various signs indicate that the Fed may be forced to tighten policy ahead of schedule. Among them, the central bank's reverse repurchase tool last week set a record high of US$485 billion, reflecting the proliferation of US dollar liquidity. In addition, as data shows that the use of cars and trucks in the United States is growing at an annual growth rate of 50%, putting together with the highest increase in median rent since data recording, the national CPI data is likely to continue to rise. However, some economists believe that when the demand for most commodities has slowed down and supply begins to increase, prices will increase moderately, and inflation will also be benign.
Finally, in addition to inflation, the labor market is one of the critical indicators determining the Fed's policy guidelines shortly. Previously, with the federal government's large-scale stimulus measures, despite the decline in the unemployment rate, the job vacancy rate and labor force participation rate reflected that the US labor market was still weak. So we have to wait now and see if the surprise that we were waiting for last month will happen in May or not.
US dollar index technical review
USD index could break out its created range between 89.75 and 90.15, currently trading about these levels. If DXY can close above this level today, according to waited positive data from the US economy, next resistances at 90.34, 90.50, and 91.00 are likely to be reached this week. RSI at 65, a price above main MA lines and OBV trend line and increasing, everything support market bulls.
