US Dollar Controls the Trend in Unstable Market Conditions

US Dollar: The American economy was supposed to be pretty smooth sailing from Labor Day onward, with solid job gains and health spending growth. Instead, the economy is battling turbulent undercurrents brought on by the Delta variant, which resulted in a slowdown in hiring and a drop in consumer mood as the year progressed. We are optimistic that the economy will remain on track, but it will need time and patience.

This week, we took a look back at a time when Delta wasn’t a major problem. Job opportunities reached new highs in July, according to the Job Opening and Labor Turnover Survey (JOLTS). Even if Delta-related fears caused a pause in August, demand for workers remained high.

This means that the number of available jobs outnumbered the number of unemployed in August, implying that firms may need to find more inventive ways to boost employment. Because of the pandemic’s residual consequences, the job economy will likely take longer to fully recover.

Economists point to several reasons why workers aren’t taking advantage of what appears to be an endless demand for their services. One of them, pandemic-related emergency jobless assistance, has come to an end this week. It remains to be seen whether this will result in an influx of willing workers. There is no indication that states that terminated the extra benefits before the national deadline witnessed a large increase in employment.

In this week’s Beige Book report, safety concerns were mentioned frequently, pointing to a drop in demand for activities that rely on social contacts, such as dining out, travel, and tourism. The slowdown could lead to a reversal of the current shift in consumption from goods to services.

Overall, markets are choppy on both the supply and demand sides as a result of Delta. However, this, like previous waves, is likely to pass, and when it does, the recovery will accelerate. The Fed will aim to keep inflation on a steady path, which will likely need a lowering of the rate of accommodation and relaxation of asset purchases by the end of the year.

US Dollar Index Recovers Shy of 91.78 Support Level

Last week, the US dollar index recovered ahead of 91.78 support, indicating some near-term bullishness. There is a chance that the gain from 89.53 to 93.72 will be extended, especially if risk attitudes deteriorate. Overall, though, we continue to like the 89.20 patterns as a three-wave consolidation pattern.

As a result, the 38.2 percent retracement of 102.99 to 89.20 at 94.46 is a significant obstacle for DXY to surmount before becoming positive in the medium term.

Breaking through 91.78 support, or being rejected by 94.46 in the case of another advance, would suggest that the entire downtrend from 102.99 (2020 high) is ready to resume through 89.20, and maybe through 88.25 (2018 low) as well.