The dollar index resumed its decline yesterday. The correctional growth was short-term and the indicator turned in the direction of the 96th figure already on Thursday afternoon. The market is still dominated by a general risk appetite, which is due to the widespread weakening of the quarantine regime in key countries in Europe and the world. Market participants virtually ignore current macro statistics, viewing them through the spectrum of global economic recovery. Moreover, the market has been aware for a long time that the economic indicators of the second quarter will be worse than the first, and the decline in the world economy is record-breaking. By and large, traders "won back" this negativity last month, and now their eyes are on the future. The dollar bulls are no exception. In fact, everyone is interested in only one question: how fast will the global economy in general and the US economy in particular be able to recover in the second half of the year? Any information that indicates the support of restoration processes by the authorities or financial institutions causes strong market volatility.
Yesterday, this volatility was not in favor of the dollar: the actions of the European Central Bank, which expanded the stimulus program by 600 billion euros, helped risky currencies find a new foothold. The US currency was out of business once again due to the lack of demand for protective instruments, as well as due to ongoing protests in the United States, which, in turn, may contribute to the second outbreak of coronavirus in this country and, accordingly, to another lockdown.
Today, the dollar has to go through a rather important "exam". Nonfarm have always been of particular interest to the market, but in this case, the numbers will be indicative. Previous values last April have already reflected the negative impact of coronavirus, but far from fully. The key indicators came out in the "positive zone", but only because statistical services did not have time to reflect the real situation on the US labor market.
Let me remind you that unemployment rose to 14% in April, and the employment growth rate decreased 10 times stronger than during the peak of the Great Depression (then a two-million low was recorded). It should also be noted that these 14% did not include temporarily unemployed. If they were classified as expected (and according to the formula "working, but absent"), this indicator would have been much higher last month. A similar situation has developed with salaries. The growth rate of the average hourly wage then reached a strange high level, which is at around 4.7% in monthly terms (although, as a rule, the indicator goes in the range of 0.1-0.4%), and around 7.9% at an annual rate (with normal fluctuations within 3-3.5%).
And one more thing: Nonfarm is two weeks behind reports on applications for unemployment benefits. Let me remind you that this indicator jumped to three million at first, and then almost seven, after which it began to show a downward trend. All this suggests that May Non Farms are likely to reflect the peak of unemployment in the United States.
According to preliminary forecasts, the unemployment rate will rise to 19.5%, and the number of employees will decline by 8 million. The average hourly wage should grow by 8.6% (in annual terms), which is almost three times more than before the pandemic. But the growth of this indicator will most likely be ignored: this dynamic, as mentioned above, is mainly due to the loss of low-income jobs. Therefore, this Nonfarm component is distorted, is distorted, and it is not worth getting stuck on it.
Generally, if all of today's indicators come out at a forecasted level, the dollar will be under background pressure, but no more. However, if the real numbers do not meet expectations, the pair's volatility will be much higher and the negative color of Nonfarm will affect the dollar much more than the positive. At the same time, the last report of ADP, which turned out to be better than forecasts, can provide a "bear service" to dollar bulls. Given the high correlation with the official report, the market will count on a stronger recovery in the US labor market. Otherwise, the dollar index will be under significant pressure again, with the prospect of a decline in the region of the 95th figure.
The euro/dollar pair is also waiting for today's data. As a result of the Asian session on Friday, traders were able to keep the price within the 13th figure, thereby confirming the strength of the upward trend. Further weakening of the dollar will allow the EUR/USD bulls to test the 14th figure and the key resistance level of 1.1410 (Kijun-sen line). But it is only necessary to make trading decisions for the pair after the Nonfarm will be release – too positive values can trigger a downward correction, temporarily pulling the pair into the 12th figure.
