Talking Points

  • U.S. Dollar: NFPs Top Forecast, Jobless Rate Rises Amid Growing Pool
  • Euro: Continues To Carve Lower Top, ECB To Pursue Joint Bond-Purchases

U.S. Dollar: NFPs Top Forecast, Jobless Rate Rises Amid Growing Pool

The greenback regained its footing going into the North American trade, with the Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR) bouncing back from an overnight low of 10,032, and the reserve currency may appreciate further next week as the fundamental outlook for the world's largest economy improves. Indeed, U.S. Non-Farm Payrolls increased 1.63K in July amid forecasts for a 100K print, while we saw the jobless rate advance to 8.3% from 8.2% as discouraged workers returned to the labor force.

As the labor market improves, the gradual recovery continues to limit the Fed's scope to expand its balance sheet further, and we should see the central bank move away from its easing cycle as the outlook for growth improves. In turn, we anticipate the FOMC to carry out 'Operation Twist' throughout the remainder of the year, and we should see Fed Chairman Ben Bernanke continue to soften his dovish tone for monetary policy as the economy gets on a more sustainable path. As the USDOLLAR preserves the upward trend from earlier this year, the greenback should continue to recoup the losses from the previous month, and the index may mark fresh highs in the coming days as it carves out a higher low coming into August.

Euro: Continues To Carve Lower Top, ECB To Pursue Joint Bond-Purchases

The Euro climbed to an overnight high of 1.2291 amid growing speculation that the European Central Bank will work with the EU to tackle the debt crisis, but the relief rally in the single currency may be short-lived as European policy makers struggle to meet on common ground. As ECB President Mario Draghi encourages the EU to further utilize the bailout fund, it appears as though the central bank is looking to coordinate with European officials, and it seems as though the Governing Council will reestablish its bond purchase program to address heightening finance costs across the periphery countries. At the same time, we are likely to see the ECB implement additional rate cuts as the region faces a deepening recession and the central bank may have little choice but to carry its easing cycle into the following year as growth and inflation deteriorates. As the EURUSD remains capped by the 50-Day SMA (1.2405), the pair should continue to carve out a lower top in August, and we will maintain our bearish outlook for the euro-dollar as the relative strength index maintains the downward trend from earlier this year.

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong

To be added to David's e-mail distribution list, send an e-mail with subject line "Distribution List" to dsong@dailyfx.com.