DXY: NFP and dollar prospects


The dollar is strengthening at the beginning of today's European session after a strong fall on Thursday, when a disappointing report from Automatic Data Processing (ADP) was published. According to this report, employment in the private sector of the US economy increased by 128,000 jobs (against the forecast of an increase of 300,000) from 202,000 in April. Although the ADP report does not directly correlate with the US Department of Labor data, which will be released today (at 12:30 GMT), it is often considered a harbinger of official data, having a noticeable impact on the market. However, the weak ADP report does not mean that the US Department of Labor report published today will be as disappointing.

However, market participants are cautious ahead of its publication, and the DXY dollar index is in a narrow range near yesterday's closing price and 101.89.

DXY Chart

Average hourly wages are expected to rise +0.4% in May (against +0.3% in April, +0.4% in March, 0% in February, +0.7% in January 2022), the number of new jobs created outside the agricultural sector amounted to 325,000 (versus +0.428 million in April, +0.431 million, +0.678 million in February, +0.467 million in January 2022), and unemployment fell to 3.5% (against 3.6% in April and March, 3.8% in February, 4.0% in January 2022).

The data shows continued improvement in the US labor market, which is positive for the dollar.

As you know, when determining the parameters of its monetary policy, the Fed is guided (among other things) by 3 key indicators: GDP, inflation rate and the state of the labor market. A strong report on the labor market will be another argument in favor of long dollar positions.

It also received support this week from Thursday's positive weekly data on U.S. initial jobless claims, which dropped to 200,000 from 211,000 a week earlier, while total beneficiaries fell to 1.309 million. from 1.343 million a week earlier, and from data published on Wednesday by the Institute for Supply Management (ISM) (PMI index in the manufacturing sector of the US economy in May unexpectedly rose to 56.1 from 55.4 in April, which was also significantly better than the forecast 54 5. At the same time, the sub-index of new orders rose to 55.1 from 53.5). It should be noted that the manufacturing sector forms a significant part of the country's GDP.

On Wednesday, U.S. Treasury Secretary Janet Yellen, who previously served as head of the Fed, said that it was a mistake to rely on the temporary nature of the current surge in inflation, given the military conflict in Ukraine and the prospect of further growth in energy prices, as well as serious disruptions in supply chains.

If today's report of the US Department of Labor is strong, as expected, then the outlook for the dollar will improve, and the Fed will have more arguments in favor of a tighter monetary policy.

Otherwise, and if the report of the Ministry of Labor is disappointing, then the dollar may drop sharply. In any case, during this period of time (at 12:30 GMT) a sharp increase in volatility is expected not only in dollar quotes, but also in the entire financial market, which should be taken into account when making trading decisions. Perhaps more cautious investors will prefer to stay out of the market during this period of time. And it is also a trading decision.