Title: U.S. Dollar Weakens as Traders Shift Focus to Dovish JOLTS Data and Fed Rate Trajectory
Author: Adapted and expanded from analysis by Vladimir Zernov, FX Empire
The U.S. dollar retreated on Tuesday, weighed down by softer-than-expected JOLTS (Job Openings and Labor Turnover Survey) data, raising speculation that the Federal Reserve might adopt a more dovish stance in the near term. This drop in the greenback marks an important shift in the forex landscape, particularly as markets retrace expectations of prolonged higher interest rates. The weakening dollar reverberated across several key currency pairs, including EUR/USD, GBP/USD, USD/CAD, and USD/JPY.
With U.S. Treasury yields sliding in response to weaker labor market statistics, forex traders are now repositioning ahead of upcoming economic data and Fed testimonies from Chair Jerome Powell. This article delves deep into market reactions, technical outlooks, and macroeconomic dynamics influencing the currency pairs that took center stage.
Key Drivers Behind Dollar Weakness
A series of economic reports have eroded confidence in the sustainability of elevated interest rates in the U.S. The latest JOLTS data, which offers insight into employer demand for labor, provided the clearest evidence yet of cooling labor conditions.
Key Points from the JOLTS Report (May 2024 Data):
– Job openings declined to 8.06 million, the lowest reading since February 2021.
– Market expectations were set at 8.37 million, amplifying the bearish surprise.
– Quits rate, which reflects voluntary separations and is generally interpreted as a gauge of worker confidence, has been on a gradual decline.
– The openings rate fell for both the private and public sectors, with notable drops in health care, social assistance, and transportation industries.
These signs suggest diminishing momentum in a labor market that has remained surprisingly resilient throughout the tightening cycle. As such, anticipation of a Fed pivot has grown stronger, with traders assigning a roughly 64% probability as of early June for a rate cut by September, according to the CME FedWatch Tool.
U.S. Treasury yields fell across the curve in response, with the benchmark 10-year yield slipping below 4.30%. This decline in yields exerted downward pressure on the U.S. Dollar Index (DXY), which fell to 104.15 during Tuesday’s session.
EUR/USD: Gains on Back of Weak Dollar and Robust Eurozone Data
The euro appreciated against the dollar, boosted by both the greenback’s retreat and improving eurozone activity indicators. EUR/USD climbed to 1.0890 across the session, reflecting increasing investor confidence in a stabilizing European economy.
Supporting Factors for the Euro:
– Strong retail sales data from Germany revealed a month-over-month increase of 1.5% in April, exceeding analyst expectations.
– Flash CPI data from the eurozone came in slightly higher than expected, with headline inflation at 2.6% on a year-over-year basis, reinforcing expectations that the European Central Bank (ECB) may not be in a rush to pursue further policy easing beyond June.
– ECB Chief Economist Philip Lane recently noted that while inflation was trending downward, the pace at which the ECB will consider further cuts will be “gradual.”
Technical Outlook for EUR/USD:
– The pair tested resistance near the 1.0890 level, with the next critical level to watch being 1.10.
– Support lies near the 50-day moving average around 1.0780.
– Momentum indicators, such as the Relative Strength Index (RSI), remain in neutral territory, suggesting room for further upside before overbought conditions emerge.
GBP/USD: Sterling Advances on Dollar Weakness and Political Stability
The British pound also took advantage of the weaker greenback, pushing toward the 1.28 mark. Political developments within the UK contributed to stability in markets, helping GBP/USD extend its rebound from
Read more on USD/CAD trading.