DXY Outlook: Expect the USD to Lose More Ground

Sep 6, 2021 02:52 PM ET
DXY Outlook: Expect the USD to Lose More Ground
  • Markets continue riding on Friday’s NFP data release.
  • The yen faces mixed fortunes on Covid -19 fears and renewed hopes of a stimulus.
  • Euro looks to the ECB decision to chart its trajectory.

The US dollar gained marginally against the euro in early Monday trading, which saw EURUSD lose 0.11% to trade at 1.1865.  In the morning in Asia, the dollar rose a bit but stayed close to a month-long low after investors deferred expectations for when the US Fed will start to trim their asset purchases. On Friday, the disappointing results of the most recent US jobs report were announced.

Disappointing US jobs data dents USD

For August, US payrolls increased to a lower-than-expected 235,000 while the unemployment rate remained stable at 5.2 percent. On Friday, the dollar dipped to as low as 91.947, its lowest level in a month, before rising to 92.249. 

At the time of writing, DXY was up by 0.23% to register 92.251. An upward revision to July’s already positive reading helped to offset the poor August jobs figure to some extent.

Thursday's meeting of the European Central Bank will be one where investors are watching to see if the bank will soon scale back its quantitative easing. There is a debate among the ECB's members: some want to shrink the stimulus by cutting the asset purchase program, while others believe that the stimulus should be maintained.

To the surprise of economists, the German Factory Orders rose in July, indicating that the resurgence of the German industrial sector is picking up steam. The 3.4 percent rise in July German manufacturing order growth was better than expected. Despite the good news from Germany, EURUSD remains in the red as of the time of writing.

Sensitive aussie pegs its next move on RBA decision

Following Friday’s disappointing US jobs data, AUDUSD gained 0.69% and rose as high as 0.7478. However, at the time of writing, the pair was down 0.19% and was trading at 0.7435, having opened the day at 0.7450. 

The AUDUSD pair reflects the markets' apathetic demeanor while uncertainty over the Covid-19 and cautiousness ahead of the Reserve Bank of Australia's (RBA) monetary policy announcement continues. And that's compounded by the American Labor Day holiday and the lack of important information and data points.

With the RBA meeting this week, market nervousness is exacerbating the AUDUSD pair's overall weakness. As suggested by Victorias' Premier Daniel Andrews (per ABC News), the urgency of discussions on lowering local lockdown measures, where more than 2000 cases of the virus have been diagnosed in the last 13 months, is reduced by the total number of virus cases diagnosed in Victoria in the last 24 hours, which has risen by 246 cases.

A gloomy outlook for Australia's economy is underpinned by a 2.5% decline in jobs advertisements as reported by ANZ Job Advertisements for August. This is crucial for anticipating short-term trends. More than anything, traders should pay close attention to the upcoming RBA meeting because it will likely have a great effect on the AUDUSD market.

Mixed fortunes for USDJPY

Optimism that the new Japanese administration will announce significant stimulus bolstered JPY, which was able to regain some of its losses. Also, news about a possible easing of Covid-19 restrictions in autumn helped raise the mood. Nonetheless, Japan's currency continues to remain in a funk over political turbulence, economic weakness, and the deadly pandemic.

Last week, Japanese Prime Minister Yoshihide Suga announced that he would be stepping down from his position later this month and also revealed that he would not be seeking re-election. Instead, he said that he would like to focus on helping the country tackle Covid-19 in the remaining period of his tenure.

The news, surprising as it was, was somewhat greeted by renewed optimism of a potential increase in stimulus spending by the next regime. This was underlined by the rise by benchmark Topix index to a 30-year high.  

On Friday, USDJPY closed at 109.688, a decline of 0.20%, but the dollar recovered to open on Monday at 109.911 and was at 109.876 at the time of writing.

EURUSD technical analysis

The EURUSD is showing strong momentum, as its 20-EMA stays above its 50-EMA. Under current circumstances, the bulls are likely to keep their control of the market. A bullish EURUSD market could provide the impetus to drive the pair up to the first resistance at 1.1907. 

EURUSD daily price chart with 50-EMA  and 20-EMA

A sustained push could encounter the second resistance at 1.1982. On the flip side, a bearish market may pull the pair down to the first support at 1.1862, and further losses are likely to be supported at 1.1795.

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