USD : Important Economic Data

(Thu, 3 Sept 2020). Euro weakness is helping the USD to stabilize at lower levels. Monthly US Labor Report (NFPs) released on Friday.

The recent move higher in the US dollar basket, off a 27-month low, needs to play out further to gain more credibility as Euro weakness seems to be the short-term driver of price action. The US dollar basket is a measure of value against a basket of six other currencies, including the Euro which has a dominant weighting of 57.6%. Any change in the Euro, therefore, weighs more heavily on DXY price action, as can be seen this week when a sudden dip in the value of the single currency has allowed the US dollar basket to move higher. While the Euro remains weak, helped by ECB commentary questioning the single currency’s strength, the USD is running into a batch of important economic releases that may provide fresh domestic drivers.

In addition, recent CoT data shows that speculative accounts are extremely long of EUR/USD (83%), with short positions being pared back while long positions have been increased. This week’s sharp move lower in EUR/USD is likely to be sellers pushing the exit door open.

The US economic calendar is packed full of potentially market-moving data and events for the rest of the week. Today sees initial jobless claims (12:30 GMT), US ISM (14:00 GMT) and a speech by the Fed’s Charles Evans, while on Friday the monthly US Labor Report – NFPs – are released at 12:30 GMT. All of these data points need to be closely watched.

The daily US dollar basket chart shows a potential reversal signal – bullish hammer - made on Tuesday this week. After hitting a 27-month low, the price reversed higher with the long lower wick showing a rejection of lower prices and sellers running out steam. Yesterday’s and today’s candle have produced both higher highs and higher lows, while the DXY is currently above the 20-dma, indicating that short-term positive momentum is in control of price action. A series of recent lower highs, and the 50-dma, all the way up to 94.00 need to be broken and closed above to give the move higher more credibility.

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