Jobless Claims Drop

Following a further strong rally this week, the US Dollar softened yesterday as the latest weekly jobless claims number came in below forecasts. Claims rose 227k last week, down from 242k prior and below the 243k expected. Traders have been paying special attention to labour market data recently, given the Fed’s shift in focus. Last month, an unexpected uptick in the NFP release saw expectations for a larger .5% Fed rate cut in November dismantled.

NFP Next Week

The market is now preparing for next week’s NFP update with rate cut expectations hanging in the balance. While a further .25% cut in November is widely expected, any additional NFP strength next week could see pricing for a further cut in December scaled back, leading USD higher. On the other hand, if we see some fresh weakness in next week’s jobs data, USD is vulnerable to a long-squeeze as December rate-cut expectations rise.

US Elections

USD has also strengthened recently on a resurgence in Trump’s perceived election chances. Traders have priced in a higher risk of a Trump win in recent weeks, returning to the dynamics of the ‘Trump Trade’, leading USD higher and EMFX and commodities lower. As we near the elections, USD has room to move higher if polling results support the view of a Trump win. If Trump doesn’t win, however, USD looks vulnerable to a sharp drop early November, given the rally we’ve seen.

Technical Views

DXY

The rally in DXY has seen the index breaking back above the bull trend line and the 104.05 level. While above here, focus is on a continuation higher towards 105.97 next. With momentum studies overstretched, however, there is room for some correction near-term. 102.46 remains key support for bulls to hold.