U.S. economic data could help boost the greenback

The FOMC meeting is unlikely to spring any surprises especially after the central bank signaled that it expects to hike rates three more times in 2018.

Largest interbank FX dealer goes bearish on dollar

Vince De Castro, Head of Marketing at Orbex, examines the economic triggers that led the Dollar downward recently, and how manufacturing PMI may well boost its value imminently.

The U.S. dollar closed the month of December on a weaker note, as the ICE futures U.S. Dollar Index closed on Friday at 91.60. This marked a retest of the support level that was initially established in April and May of 2016.

The decline in the greenback came about due to many factors, including the end of the year flows. Despite the December rate hike and the tax reforms plans, investors were not too excited about holding the U.S. dollar into the end of the year.

Vince De Castro, Head of Marketing, Orbex

Economic data was sparse for the most part last week, amid a holiday shortened week. Trading was mostly fueled by short term technical with the weaker USD helping most of its peers to post a strong rally.

Even the New Zealand dollar, which fell sharply after the elections, was seen recovering by nearly 3% at the end of December. Commodities also got a boost and the euro managed to briefly hit the $1.20 handle before settling below.

From a technical perspective, with the USD settling at the familiar support, we could expect to see a near term recovery in price. This could potentially come as the U.S. dollar looks forward to a busy week with some important economic data releases lined up.

Busy start for the greenback

With a new trading week opening up, the markets will be looking at a short but a busy week ahead. Data kicks off on Wednesday with the release of the ISM’s manufacturing PMI for December.

Economists are forecasting that manufacturing activity according to ISM’s gauge held steady at 58.3 levels. In November, the ISM index was seen at 58.3 as manufacturing activity was seen expanding for the 102nd consecutive month.

The new orders index was seen rising to 64, following October’s increase to 63.4. The data was consistent with that of Markit’s own gauge of manufacturing activity. Overall, the PMI in the manufacturing sector signaled that the upturn was strong, although job creation was seen to be weakening.

Later in the day, the FOMC meeting minutes will be another event to watch out for. The meeting minutes covers the Fed’s monetary policy meeting held earlier in December. The central bank had hiked interest rates by 25 basis points.

The FOMC meeting is unlikely to spring any surprises especially after the central bank signaled that it expects to hike rates three more times in 2018.

With the U.S. dollar seen on a weaker footing, a hawkish tone from the FOMC minutes could potentially boost the prospects for the USD.
On Thursday, ADP/Moody’s will be releasing the private payrolls data. According to the estimates, the U.S. economy is forecast to add 192k jobs in the private sector. This is seen to be somewhat higher from November’s print of 190,000.

The week is expected to end on a high note with Friday’s payrolls report. The U.S. non-farm payrolls data for the month of December is expected to show 189k jobs being added.

A somewhat weaker pace of increase compared to 228k jobs in November. However, a beat on the estimates could be possible based on the increase in manufacturing and services sectors.

The U.S. unemployment rate is expected to remain steady at 4.1% which will mark a steady unemployment rate for three months. Investors will be looking to the wage growth data however.

Estimates point to a modest increase with the average hourly earnings expected to rise 0.3% on the month. Later in the day, the ISM’s non-manufacturing data will be released.
After falling to 57.4 in November, the non-manufacturing activity is expected to post a modest recovery with estimates showing an increase to 57.8.

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