Week Ahead: US Jobs to revive dollar bulls?

– The dollar is set for a monthly decline despite rallying to levels not seen in 20 years two weeks ago!

It has depreciated against almost every single G10 currency in May with the less hawkish than feared Fed minutes keeping bulls at bay.

Investors are expecting the Fed to adopt a flexible approach on rates which could soothe fears over the central bank’s overly aggressive stance tipping the US economy into recession. Given how these expectations are boosting sentiment and rekindling risk appetite, the dollar may remain depressed and unloved as we enter June.

Before we take a deep dive into what to expect from the greenback and other key assets over the next few days, here are the scheduled economic data releases and events in the coming week:

Monday, 30 May

• EUR: Germany CPI and Eurozone consumer confidence
• EU leaders meet in Brussels with geopolitics driving the agenda
• US markets closed for Memorial Day holiday

Tuesday, 31 May

• CNH: China PMI
• NZD: New Zealand building permits, business confidence
• JPY: Unemployment Japan, retail sales & consumer confidence index
• EUR: Eurozone CPI
• USD: CB consumer confidence

Wednesday, 1 June

• CNH: China Caixin PMI
• AUD: Australia GDP report
• CAD: Bank of Canada rate decision
• EUR: Unemployment Eurozone, ECB President Christine Lagarde speech
• USD: U.S. construction spending, ISM Manufacturing, Fed speeches by New York President John Williams and St. Lous Fed President James Bullard, Fed balance sheet roll off begins

Thursday, 2 June

• AUD: Australia trade
• EUR: Eurozone PPI
• USD: U.S. factory orders, durable good, initial jobless claims, Fed speech by Cleveland Fed President Loretta Mester
• Brent: Virtual OPEC+ Ministerial meeting
• UK markets closed for Spring Bank Holiday

Friday, 3 June

• USD: US employment report for May
• EUR: Eurozone retail sales, Markit services PMI
• 100th day of war in Ukraine
• UK markets closed for Queen Elizabeth II Platinum Jubilee

The week ahead could be explosively volatile as investors continue to juggle inflation jitters, recession fears, ongoing geopolitical risks, and China’s covid-19 curbs. We expect sentiment to also be influenced by key economic reports from major economies, including the all-important US jobs report on Friday. US markets will be closed on Monday for Memorial Day while UK markets will be closed from Thursday to Friday for the Queen’s platinum jubilee. Nevertheless, the major data releases and events should keep investors well occupied.

Will dollar bulls return in June?

King dollar could have the opportunity to redeem itself in June if the key monthly US payrolls report on Friday exceeds market expectations. A strong set of results in May could reinforce Fed hawks and enforce fresh pressure on the central bank to raise interest rates – especially after the strong readings in April.

According to a survey on Bloomberg, the US economy is expected to have created 329k jobs in May with the unemployment rate dropping to 3.5% and average hourly wages seen rising 0.4%. Dollar bulls could have the opportunity to fight back if the report matches or surpasses forecasts. We expect the dollar to also be influenced by speeches from numerous Fed officials throughout the week.

Looking at the technical picture, the Dollar Index (DXY) certainly needs some love. Prices are under pressure on the daily charts with 101.00 acting as the next key level of interest. If bulls are able to fight back before prices secure a solid close below 101.00, then a rebound towards the 103.00 regions and higher could be on the cards.

The weakening dollar has provided the FX space some breathing room, as the equally-weighted USD Index eyes the 1.1450 level. A strong breakdown below this support could encourage a steeper decline towards 1.1350.

Keep an eye on the S&P500

The volatility witnessed across equity markets has placed investors on an emotional rollercoaster ride. One major index that has hijacked our attention is the S&P500 which dipped a toe into bear territory on the 20th of May before bouncing back. With the Fed minutes signalling room for a pause in rate hikes later this year, this could provide a lifeline to equity bulls. However, a strong set of US economic reports and rising inflation could cap the S&P500 rebound.

A strong breakout above 4100 may encourage a move higher towards the 4313 lower high. Should 4100 prove to be reliable resistance, the S&P500 finds itself back in that psychological “red zone”.