Title: USD/CHF and EUR/USD: Weak U.S. Data and Fed Commentary Trigger Currency Reversal
By Matt Weller, FOREX.com
(Original article credit: Matt Weller, FOREX.com. Original source: https://www.forex.com/en/news-and-analysis/usd-chf-eur-usd-weak-u-s-data-and-fed-signals-spark-fx-reversal/)
Recent developments in U.S. economic data and subtle shifts in Federal Reserve sentiment have prompted notable reversals in major currency pairs, particularly USD/CHF and EUR/USD. Market participants closely watching signs of potential Fed easing and economic slowing are positioning accordingly. A combination of weaker-than-anticipated labor market indicators and dovish interpretations of Fed officials’ commentary has led the U.S. dollar to soften across multiple currency pairs.
This article presents a detailed analysis of what caused these significant shifts in the forex market and what traders might expect next.
Overview of Key U.S. Economic Data Misses
Over the last week, a trio of major U.S. economic indicators surprised to the downside. These data releases have caused traders to reassess their expectations for Federal Reserve interest rate policy:
– **JOLTS Job Openings (April)**: Came in at 8.06 million, which missed expectations and marked the lowest reading since February 2021. This report suggests that demand for labor may be slowing faster than anticipated.
– **ISM Manufacturing PMI (May)**: Printed at 48.7, below the 49.8 forecast. More importantly, the employment component plunged to 51.1 from 48.6, indicating contraction. Weakness in employment within manufacturing raises concerns about broader labor market conditions.
– **ADP Employment Survey (May)**: Showed a smaller-than-expected increase of just 152,000 private sector jobs compared to the anticipated 175,000, which further reinforced concerns that job growth may be decelerating.
Taken together, these disappointing labor market data imply that the U.S. economy might be approaching an inflection point. The labor market had previously been one of the most resilient segments of the U.S. economy, but these reports suggest the pace of hiring is slowing. That, in turn, would reduce the likelihood that the Fed will need to maintain aggressive monetary tightening.
Federal Reserve Signals on Standby
In conjunction with the economic releases, comments from a key monetary policymaker added fuel to the fire.
– **Fed Governor Lisa Cook** stated on Tuesday that while the central bank remains data-dependent, the Fed is mindful not to over-tighten. Cook highlighted that she sees inflation on a downward trend, although still elevated, and does not want to unnecessarily risk the economic expansion.
This balanced tone, with a nod toward patient policy and ongoing assessment, implies the Fed might be more open to easing towards the end of the year if economic data continues to disappoint. While this doesn’t amount to a sudden pivot, it’s a shift toward a more cautious and potentially dovish posture.
Market Reactions: USD/CHF and EUR/USD Respond
In response to the data and Fed commentary, the U.S. dollar retreated sharply. Among the most notable moves were sharp reversals in USD/CHF and EUR/USD, two key pairs sensitive to U.S. rate expectations.
USD/CHF Analysis
The U.S. dollar weakened significantly against the Swiss franc, with the USD/CHF pair reversing course after a period of dollar strength.
– USD/CHF had previously rallied nearly 500 pips from its April low of around 0.9000, approaching the key psychological level of 0.9200 in May.
– However, over the past two weeks, this momentum has faltered, and the pair dropped back below the 0.9000 level following weak data and dovish Fed signals.
Key Technical Observations for USD/CHF:
– **EMA Confluence Support**: The pair is now testing support near the 200
Read more on EUR/USD trading.