By Lukman Otunuga, Research Analyst at FXTM
The Dollar turned volatile and unpredictable on Friday afternoon as investors digested the mixed US jobs report for April.
Prices initially jumped higher as market players cheered the fact that the United States added an impressive 263,000 jobs to its economy last month.
With the unemployment rate dropping to its lowest level since December 1969, to 3.6%, one would have expected the Dollar to aggressively appreciate against its major counterparts. However, the market reaction suggests that investors are clearly more concerned with wage growth figures which came in at 0.2% month-over-month, slightly below the expected 0.3%.
All in all, Friday’s report is unlikely to pull the Federal Reserve away from the sidelines and this reality continues to be reflected in the Dollar’s price action.
The Dollar was thrown an unexpected lifeline earlier in the week, as solid US data and a slightly more hawkish Federal Reserve dampened expectations of a rate cut in the near-term.
Investors were forced to re-evaluate the Federal Reserve’s monetary policy path for 2019 after Jerome Powell stated that lower inflation was “transitory”. With the recent string of positive data also easing concerns over the health of the US economy and boosting the Dollar’s safe-haven status, bulls are likely to remain in the driver’s seat in the near-term.
Friday’s main risk event for the Dollar was the all-important jobs report which offers fresh insight into the health of the US labour force.
Markets initially expected the US economy to have added 180,000 jobs in April, with wage growth projected to rise 0.3% month-on-month while the unemployment rate was anticipated to remain unchanged at 3.8%, with final data improving on all fronts.
While every element of the jobs report is important, there remains a special focus on wage growth which could shape interest rate expectations. Any signs of wage growth cooling could rekindle speculation over the Fed cutting interest rates – something that will punish the Dollar.
Looking at the technical picture, the Dollar Index (DXY) was trading marginally below 98.00 early Friday. A weekly close above this level may inject bulls with enough inspiration to attack 98.33.
Gold to continue testing $1,270 support line
Gold remains stuck in its bearish channel after Fed Chair Jerome Powell pushed back against calls for a US interest rate cut.
Such rhetoric has contributed to a firmer Dollar, which in turn is making it tougher for Gold to climb. The precious metal also remains suppressed by rising risk appetite, on news that a US-China trade deal may be sealed by next week, even though similar headlines have been oft-repeated in recent months. However, broader uncertainties over the global growth outlook may cushion Gold’s decline in the near-term, even as it continues to test the psychological $1,270 support level.
Commodity spotlight – WTI Oil
WTI Oil is on route to achieving two consecutive weeks of losses for the first time in 2019.
Despite US sanction waivers on Iran’s Oil being lifted this week, Oil prices continued to fall as US Crude inventories rose to their highest levels since 2017. This implies that OPEC+ producers have their work cut out in trying to rebalance global Oil markets and may extend the existing production cuts programme past June, even as Russia failed to comply with targets set for April.
Hence, the $60/bbl psychological level will be an important support in the immediate term, to see whether Oil bulls can regain control of the narrative and reverse the slump.
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