Dollar Declines As Stocks Hit New Highs, Emphasis Shifts to Unemployment

Last week, the dollar fell sharply as the massive non-farm payroll disappointment provided a clear nod to the Fed’s cautious approach. Only realized economic data, not forecast outlook, could be considered significant progress. Indeed, the Fed isn’t in a position to even suggest tapering. The anticipation that ultra-loose monetary policy will continue to be in place for a while lifted US stocks to new all-time highs. In the meantime, amid a post-NFP jump, the treasury yield held up well in the late recovery.

Many investors would turn their attention to pricing pressures as a result of the large payroll’s negative surprise. All are becoming more expensive, and employers will need to consider raising salaries. The US April inflation survey, which will show the “base-effects” in annual inflation due to the shock that hit the US economy last year, may continue to be a factor.

Investors will also be out for a slew of Fed comments. Evans, Williams, Harker, Waller, and Bullard, all of the Federal Reserve, talk about the US economy, while Daly attends a banker’s event and Kaplan participates in a moderated debate.
United States Unemployment
Following a relatively disappointing nonfarm payroll study, Fed Chair Powell’s statement that he is not prepared to start talking about asset-purchase taper talk would be vindicated. Given a major disappointment with the April employment figure, US growth exceptionalism is still widely expected in the coming months, but financial markets may see Powell pivot if inflation comes in far higher than expected and the rest of the recovery remains strong.

As fears intensify that the labor market problem is more of a supply problem, the US economic recovery will likely take much longer than many had expected.

The dollar index’s effort to rebound last week was hampered. Following a sudden drop, the decline from 93.43 resumed. A further drop to the 89.20 low still forecasts.

If there is a strong break there, the larger downtrend from 102.99 will restart. DXY could be in the third leg of the long-term corrective pattern from 103.82. While a break of 89.20 is possible, good support from 88.25 and a 100% projection of 103.82 to 88.25 from 102.99 at 84.72 could be seen. From there, we’ll see what happens.