The US Dollar (USD) has witnessed a two-month rally powered by certain factors, leaving the market with a long position on it. However, as investors look ahead to 2025, there’s a question of whether they’ll first experience a shake-out due to their positions. Today poses a risk to these positions with the release of the November jobs report, as pointed out by ING’s FX analyst Chris Turner.
The recent bounce in the euro has pushed the US Dollar Index (DXY) back below 106. There’s an understanding that weather conditions and the Boeing strikes likely reduced last month’s nonfarm payrolls number by around 110k (as it only rose by +12k). As a result, the consensus estimate for today’s figure is around 220k. A number below 200k would generally be seen as weak, while it would probably take a figure over 300k to seriously cast doubt on whether the Federal Reserve will implement a rate cut on 18 December.
ING believes that the Fed currently has an inclination to cut rates. Attention will also be on the unemployment rate. If it rises back to 4.2%, that would slightly favor a Fed rate cut. On the other hand, if it remains unchanged at 4.1%, it would support the dollar as it might suggest that the central bank could skip a cut in December after all.
The bounce in the euro has led to the DXY dropping below 106. There’s a strong belief that the dollar will rally into next year, and it’s suspected that the DXY won’t sustain a break below 105.60/70 even if the Nonfarm Payrolls (NFP) data comes in on the softer side. In fact, investors often take advantage of the post-NFP liquidity to establish strategic positions, and any weakness today is seen as an opportunity to buy dollars.
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