The event of the day may be the reading of data from the US labor market, that is, the publication of the popular NFP. This data may be in the spotlight today, as the labor market is indicated to be the one based on the economic slowdown and the prospect of recession.
Dollar exchange rate dependent on Non-Farm Payrolls from the US
In theory, the cycle may look like this, with stock markets falling first, as investors are already estimating a future decline or deceleration in the profits of listed companies, which in turn may be a consequence of a future slowdown/recession in the economy. Then companies at the very end may react by downsizing or ultimately even layoffs. Hence, the labor market, which may still be holding up, is the one last to react to what happened first in the stock markets and now in the economy. According to the consensus, the U.S. economy probably added 250,000 new jobs in September 2022. If the actual reading came in at that level, it would be the smallest gain in new jobs since December 2020. The unemployment rate could remain unchanged at 3.7 percent, and wages could rise by 0.3 percent m/m and 5.1 percent y/y, according to market consensus. According to the Fed's macroeconomic projections, the US unemployment rate could rise to 4.4 percent in 2023.
Moreover, the number of planned layoffs in the U.S. in September rose to nearly 30,000, a change of 67 percent from September 2021. In addition, people who of their own volition, although they could,they do not want to work, may want to enter the labor market. The economic situation may be so difficult that living comfortably on welfare may no longer pay off, and someone might start looking for a job when it may be harder to get one. This, in turn, could also translate into an increase in the unemployment rate.
The Fed seems that it won't back down
However, it seems that the Fed will not back down from anything when it comes to further interest rate hikes. The market is pricing in the possibility of another 0.75 percentage point hike on November 2. This expectation may be supported by further statements by Fed officials. U.S. Federal Reserve Board of Governors member Christopher Waller said Thursday that "monetary policy can and must be applied aggressively" to combat inflation, adding that the Fed should continue to raise interest rates "until we see that progress is both meaningful and sustained," predicting that they will continue "until early next year," BBN reported.
In contrast, Federal Reserve Bank of Chicago President Charles Evans said Thursday that the central bank should have started raising interest rates in response to rising inflation earlier than it did. Speaking at the Illinois Chamber of Commerce Annual Luncheon, Evans warned that "we're heading from a 4.5 percent to a 4.75 percent range probably by spring." He stated that the Fed will discuss whether the next hike will be by 50 or 75 basis points.
How are the dollar exchange rate quotes shaping up?
Source: Conotoxia MT5, USDIndex, H4
The U.S. dollar index has fallen more than 4 percent in recent days, counting from the peak at 115 points to the bottom at 110 points. This seems to have been one of the biggest corrections in recent times. As a result, the index may have reached a potential support line that was drawn after the recent lows. It seems that from the side of technical analysis, it could be crucial in the near future.
Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Conotoxia investment service)
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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