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  • DXY will be a major theme this week, with Trump and the Fed to making noise.
  • NFPs have risen 2.509mn in May versus a consensus estimate of a 7.5 million fall.

The US dollar is a touch softer in the open this week with DXY -0.17% at the time of writing and trading below the 97 handle.

DXY slid from 96.93 to a session low of 96.78 in the open despite an almighty turn around in the US jobs data on Friday where Nonfarm Payrolls smashed expectations.

US employment is still 19.55mn lower than it was in February

The data showed that NFPs have risen 2.509mn in May versus a consensus estimate of a 7.5 million fall. This took everyone by surprise. This was despite the knowledge that over 12 million people had filed a new unemployment claim during the survey period. 

Consequently, the US dollar on Friday rallied vs the higher-yielding currencies and gold plummeted. The sentiment is that the Federal Reserve will be encouraged by this data, a breath of fresh air after weeks of stifling pessimism, although even after these great numbers, markets recognise that US employment is still 19.55mn lower than it was in February. 

Near-term USD positioning

Meanwhile, the latest positioning data shows that leveraged funds turned USD buyers while asset managers remained sellers.

We are seeing improvement in investor risk appetite which led to a continued decline in the DXY index. Near-term USD positioning will likely be tied to incoming data on an economic recovery across key markets with investors looking for the same jobs recovery performance as the US has enjoyed.

Trade wars will also be a major factor, yet to really materialise despite all of the words fo war from both sides, China and the US.

Trade wars to move front and centre of dollar trading

  • 51% of US registered voters nationwide back Biden while 41% support Trump – CNN

The latest headlines are pertaining to President Trump’s threats to hike import tariffs on EU cars. The success that Trump’s America First approach’ brought him in his 2016 campaign, it is highly likely that he will seek to follow-up on his words towards both Europe and China, and considering the latest polls, we can expect to see a sense of urgency in coming weeks. 

Emboldened by the surprisingly strong performance of stock markets and jobs numbers, expect to hear a lot from the US president over the coming week and China will be firmly on his agenda.

Fed to remain dovish

While jobs creation has been spectacular, it is unlikely to budge the Federal Reserve too much by way of forward guidance and the tone will likely stay dovish.

We expect the chair to start prepping markets for forward guidance tied to an inflation minimum in the context of AIT. Adding to the dovishness, projections will probably show inflation falling further below 2%, and the funds rate at the ELB, through at least 2022,

analysts at ANZ Bank argued. 

DXY levels