10:25 October 6, 2023
The upward momentum of the US dollars is weakening and has currently stopped its uptrend right at the 50% Fibonacci retracement level from recent highs in September 2022. Seasonally, October favors riskier assets, which also impacts capital outflows from safer assets such as the dollar. A year ago, at the same time, around the end of September, we saw a local peak after the Fed’s sudden tightening and deteriorating outlook led to a significant increase. This year we have seen similar sentiment in the markets over a similar period. Now, at the start of next month, the dollar has already begun a slight correction.
Additionally, market attention today will turn to the NFP employment report, which is expected to confirm a slower employment increase following a weaker ADP report on Wednesday. The last three releases of the NFP report were highlighted on the dollar chart. The first two were worse than market expectations, triggering a multi-day downward move as seen on the dollar chart. After the July 7th report, there was even a 5-day correction of around 4.0%. However, the better-than-expected September report led to a rise in expectations for interest rate hikes, strengthening the dollar and further boosting growth.
The dollar has stopped growing for a week and is in a slight correction pending the data. Given the weak ADP report, there are reasons to expect an equally weak NFP report. In such a case, the current correction in the dollar index could strengthen and the next downside zone could be at 105. Source: xStation5 from XTB
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