US Dollar was seen soft on Tuesday after JOLTs data

• The DXY softened near 106.30 on Tuesday.
• The DXY weakened despite a rise in JOLTs figures from October due to profit-taking.
• Fed policy remains data dependent with odds of a December cut rising to nearly 75%.

In Tuesday’s session, the US Dollar Index (DXY) weakened despite a rise in Job Openings & Labor Turnover (JOLTs) figures from October. This weakness may be attributed to profit-taking after recent rallies against major G20 currencies. Economic data from China, including a cut in deposit rates and details of a stimulus package, contributed to the DXY's decline. 

This week’s labor market data will guide the Greenback’s dynamics as it will direct the odds of the December cut expectations by the Federal Reserve (Fed).

Daily digest market movers: US Dollar retreats as investors assess JOLTs figures, Kugler statement 

• Job Openings in the US climbed to 7.74 million in October. This figure surpassed market estimates of 7.48 million and marked an increase from September's 7.37 million figure.
• October saw little change in hires, remaining at approximately 5.3 million.
• Total separations also held steady at around 5.3 million and resignations (quits) rose to 3.3 million, while layoffs and discharges showed minimal change at 1.6 million.
• On the Fed’s policy front, its stance remains data-dependent, with policymakers leaving options open for the December meeting, but overall economic activity remains resilient and that might push officials to think twice before signalling aggressive easing.
• The Fed’s Adriana Kugler was on the wires, giving her view on the central bank’s stance.
• Kugler stated that the Fed's policy is flexible, well-positioned for uncertainties, and aims to achieve a neutral stance as inflation trends toward 2%.
• Kugler commented that the economic strength stems from a solid labor market, productivity growth and immigration, though risks like supply shocks remain.
• Kugler stressed that disinflation continues, with modest labor cooling balancing progress; trade policy impacts are yet unclear.

DXY technical outlook: US Dollar Index has bright outlook, supported by bullish trend and recent surge above 106.50

The index rose above 106.50 overnight, boosted by positive economic data and a hawkish Fed stance. However, the Index has retreated to 106.14 at the time of writing. The DXY has secured the 20-day SMA, indicating a bullish trend. Buyers are looking to defend this level and retest the 107.00 area.

Technical indicators, such as the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD), suggest mixed signals but that the uptrend is likely to continue. The MACD is below its signal line, indicating the presence of bearish momentum, but the RSI remains firm above 50. The key support is found at 106.00-106.50, while resistance is at 107.00. 

Nonfarm Payrolls FAQs

What are Nonfarm Payrolls?

Nonfarm Payrolls (NFP) are part of the US Bureau of Labor Statistics monthly jobs report. The Nonfarm Payrolls component specifically measures the change in the number of people employed in the US during the previous month, excluding the farming industry.

How does Nonfarm Payrolls influence the Federal Reserve monetary policy decisions?

The Nonfarm Payrolls figure can influence the decisions of the Federal Reserve by providing a measure of how successfully the Fed is meeting its mandate of fostering full employment and 2% inflation. A relatively high NFP figure means more people are in employment, earning more money and therefore probably spending more. A relatively low Nonfarm Payrolls’ result, on the either hand, could mean people are struggling to find work. The Fed will typically raise interest rates to combat high inflation triggered by low unemployment, and lower them to stimulate a stagnant labor market.

How does Nonfarm Payrolls affect the US Dollar?

Nonfarm Payrolls generally have a positive correlation with the US Dollar. This means when payrolls’ figures come out higher-than-expected the USD tends to rally and vice versa when they are lower. NFPs influence the US Dollar by virtue of their impact on inflation, monetary policy expectations and interest rates. A higher NFP usually means the Federal Reserve will be more tight in its monetary policy, supporting the USD.

How does Nonfarm Payrolls affect Gold?

Nonfarm Payrolls are generally negatively-correlated with the price of Gold. This means a higher-than-expected payrolls’ figure will have a depressing effect on the Gold price and vice versa. Higher NFP generally has a positive effect on the value of the USD, and like most major commodities Gold is priced in US Dollars. If the USD gains in value, therefore, it requires less Dollars to buy an ounce of Gold. Also, higher interest rates (typically helped higher NFPs) also lessen the attractiveness of Gold as an investment compared to staying in cash, where the money will at least earn interest.

Sometimes Nonfarm Payrolls trigger an opposite reaction than what the market expects. Why is that?

Nonfarm Payrolls is only one component within a bigger jobs report and it can be overshadowed by the other components. At times, when NFP come out higher-than-forecast, but the Average Weekly Earnings is lower than expected, the market has ignored the potentially inflationary effect of the headline result and interpreted the fall in earnings as deflationary. The Participation Rate and the Average Weekly Hours components can also influence the market reaction, but only in seldom events like the “Great Resignation” or the Global Financial Crisis.

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