Title: U.S. Dollar Pulls Back as JOLTS Data Weighs on Rate Outlook: EUR/USD, GBP/USD, USD/CAD, USD/JPY in Focus
By: Vladimir Zernov (Original article authored by Vladimir Zernov at FXEmpire)
The U.S. dollar reversed its recent gains on Tuesday, retreating as investors digested the latest data from the Job Openings and Labor Turnover Survey (JOLTS). With traders increasingly focused on whether the Federal Reserve will cut interest rates later in the year, weak economic indicators like the JOLTS report are beginning to influence monetary policy expectations. Currency traders adjusted their positions in major FX pairs including EUR/USD, GBP/USD, USD/CAD, and USD/JPY as markets recalibrated expectations for the Fed’s next move.
Let’s analyze the latest developments in both the macro environment and currency technicals to provide a comprehensive picture of the forex trading landscape.
Key Highlights:
– The U.S. Dollar Index fell from recent highs as investors assessed weaker JOLTS data.
– EUR/USD and GBP/USD gained upward momentum amid the dollar’s corrective pullback.
– USD/JPY slipped as U.S. Treasury yields edged lower, reducing demand for the U.S. currency.
– USD/CAD remained volatile as investors prepared for a potential rate cut by the Bank of Canada.
– Market attention remains fixed on upcoming data, including nonfarm payrolls and inflation figures, that could influence the Fed’s interest rate decisions.
Dollar Weakness Triggered by JOLTS Report
The JOLTS report, a key barometer of U.S. labor market strength, showed that job openings dropped to 8.06 million in April. This figure was significantly below analysts’ expectations of 8.36 million and marked the lowest level since February 2021. This decline in available jobs suggested that the labor market might be slowly softening, which could ease inflationary pressures.
Why JOLTS Matters:
– The Federal Reserve closely monitors JOLTS data, particularly quits and job openings, as leading indicators of labor market tightness.
– A declining trend in job openings can suggest that labor demand is weakening, possibly reducing future wage inflation.
– If the Fed perceives the labor market as cooling, it may consider rate cuts sooner than previously anticipated.
In response to the weaker jobs data, U.S. Treasury yields declined. The 2-year note fell below 4.80 percent, while the benchmark 10-year yield slipped to around 4.33 percent. Lower yields typically reduce the attractiveness of dollar-denominated assets, leading to a weaker greenback.
Markets Are Now Pricing In Slightly More Aggressive Easing:
– According to the CME FedWatch Tool, traders now see a 59 percent chance of a 25 basis point cut by the Fed in September.
– Some analysts now believe the Fed may initiate its cutting cycle sooner if economic data continues to deteriorate.
EUR/USD Climbs on Dollar Retreat
The euro picked up pace against the dollar in the wake of the JOLTS report, advancing toward the 1.0880 level. Although the European Central Bank (ECB) is expected to cut rates this week, the weakening U.S. currency drove investor interest back into the euro.
Key EUR/USD Technical Levels:
– Resistance: 1.0880 (short-term high), 1.0900 (psychological level), 1.0950 (May intraday peak)
– Support: 1.0820 (rising trendline), 1.0785 (50-day moving average), 1.0730 (May low)
From a technical perspective, EUR/USD remains within a moderately bullish channel. A breakout above the 1.0880 resistance region could open the door for a move toward 1.0950, especially if the Federal Reserve confirms a dovish shift in tone next week.
Fundamental Factors Supporting EUR/USD:
– Expectations for Fed cuts
Read more on USD/CAD trading.