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Path for a lower dollar as economic data deteriorates

June 5, 2024

Key points:

  • US economic data shows a decline, impacting the USD.
  • ECB rate cut and Swiss Franc performance signal market shifts.

The US dollar is experiencing downward pressure as recent economic data reveals a series of setbacks. The GDPNow forecast, which provides an early estimate of the US GDP, indicates an observable downturn in Q2 growth.

This shift is compounded by April’s CPI and PCE data, which supports a disinflation narrative, suggesting that inflation is easing faster than anticipated.

Euro prepares ahead for rate cut

The European Central Bank (ECB) is preparing for its first rate cut, a move that is expected to have a noticeable impact on the EUR/USD pair. While the market reaction might be muted initially, attention will likely shift to the trajectory of future rate cuts.

Technically, the EUR/USD pair is attempting a bullish breakout, although conviction remains low. Key support levels will be crucial in determining the pair’s future movements.

The Swiss Franc, on the other hand, has been advancing at a notable pace, with the USD/CHF pair plummeting. The immediate threat comes from the 200-Day SMA and the RSI oversold territory, indicating potential overheating.

Swiss National Bank (SNB) Chairman Thomas Jordan has identified a weaker Franc as a risk to inflation, suggesting that the SNB may intervene if necessary. Potential entry points for USD/CHF are being closely monitored by traders.

Similar approaches have been used in 2011 during the Eurozone crisis, where the Franc saw similar advancements and interventions by the SNB to stabilise the currency.

Waning risk appetite for Aussie

Down south, the AUD/USD pair is facing downward pressure as risk appetite wanes and iron ore prices ease. Metals, including iron ore, are struggling to find bullish momentum, affecting the Australian dollar.

Key support levels for the AUD/USD pair are being closely watched, providing potential opportunities for traders.

US job market almost back to pre-pandemic normal

The US job market has reached a milestone in its journey back to pre-pandemic normalcy, as reflected in the Beveridge Curve.

This economic chart, which shows the relationship between job openings and unemployment, has returned to pre-pandemic levels.

The Beveridge Curve, though not widely known, helps in understanding labour market dynamics. During the pandemic, the curve shifted dramatically, reflecting the sudden mismatch between job openings and available workers.

The return to pre-crisis levels indicates a realignment between worker demand and availability.

The quits rate, which surged during the pandemic due to labor market reshuffling, has also now stabilised. This stabilization suggests that workers are less inclined to leave their jobs, pointing to a more balanced labor market.

The current unemployment rate is approaching a sustainable level for stable inflation, with comparisons to pre-pandemic trends highlighting the market’s recovery.

Monthly payroll growth

Anticipation is building for May’s job growth data, which will provide further insights into the labour market’s health.

The impact of population growth on job requirements and sustainable job growth rates post-pandemic are key factors to watch.

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