As markets evaluate NFP results and react, the US Dollar saw red at the start of this week.

Market interpretation of Powell’s words indicates caution due to an unpredictable inflation trajectory. On Friday’s Nonfarm Payrolls report showed an unexpected reduction in wage inflation rates, prompting speculation for imminent Fed rate cuts.
NFP reports also demonstrate a decrease in job creation while unemployment levels increased significantly.

The US Dollar Index (DXY) has seen slight losses today and remains around 105 after showing only minor fluctuations yesterday. Headwinds such as persistently uncomfortably high inflation as noted by Federal Reserve Chair Jerome Powell are keeping it from moving further south; however, last Friday’s weak jobs report gave some indications that US economic conditions might indicate it is time for further rate reduction by the Federal Reserve; potentially contributing to further downward momentum for USD.

The US economy remains mixed, exhibiting robust consumer spending and steady labor market conditions; though there was some weakness seen in April. Fed Chair Powell has taken an optimistic view regarding future inflation trajectory while acknowledging substantial yet not guaranteed progress; his cautious stance might keep USD buoyant should data become volatile going forward.

Daily digest market Movers: DXY begins its week off well as markets evaluate labor market data.

Nonfarm Payrolls in the US increased by 175K in April, falling short of market expectations of 243K growth. Unemployment Rate rose slightly to 3.9% versus its previous 3.8% rate while Hourly Earnings Inflation dropped year over year to 3.9% from 4.1% previously.
Market expectations tilt towards lower interest rates ahead of an upcoming Federal meeting, and June rate cut odds remain steady at approximately 10%.
However, as 2018 winds down expectations have grown. Odds of a rate cut for July increased from 25% previously to 40%; and nearly 95% predicted a cut would occur prior to September’s meeting (up from 55% beforehand).
Assessing bond markets, US Treasury bond yields are on a decline with two year yield dropping to 4.81 Percent while five year and 10-year yields both drop marginally to 4.488% and 4.49 Percent respectively.

DXY Technical Analysis: Dollar Index shows negative trend with bullish potential.

Technical indicators on the daily chart offer mixed signals for DXY. A negative Relative Strength Index (RSI), coupled with rising red bars of Moving Average Convergence Divergence (MACD), indicate bears are making progress against bulls. This pattern was further confirmed by red bars rising on Moving Average Convergence Divergence (MACD), signifying bearish momentum.

However, in spite of a negative environment there are positive elements present too. Notably, the DXY is currently trading above both 100-day and 200-day Simple Moving Averages (SMAs), suggesting longer-term bullish trend momentum while briefly falling beneath 20-day SMA, suggesting short-term bearish momentum.

Conclusion In summary, DXY currently displays short-term technical characteristics indicative of bearish sentiment; however its position above both 100-day SMAs indicates longer-term bullish momentum may yet return.

Although many consider themselves experts when it comes to using technology for business use, one such expert outlined his views to me as follows.
Fed FAQs Monetary policy in the US is determined by the Federal Reserve (Fed), with two primary missions of price stability and full employment fostered through interest rate regulation. When prices rise too quickly and inflation exceeds its 2% target, raising interest rates increases borrowing costs throughout the economy resulting in stronger US Dollar (USD) as it makes US a more appealing place for international investors to park their money; conversely when inflation dips below its goal or unemployment becomes excessively high, decreasing borrowing may encourage borrowing which puts strain on its support against its strength resulting in weakening its strength which further adds strength while spurring debt consolidation resulting in its strengthening against international competitors.

The Federal Reserve holds eight policy meetings every year where its Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. Twelve Fed officials attend these FOMC meetings: seven members of its Board of Governors; the president of Federal Reserve Bank of New York; four regional Reserve Bank presidents serving one-year rotating terms, as well as one from each regional Reserve Bank president that serve one-year terms on a rotating basis;

Quantitative Easing (QE), is an unconventional monetary policy used by the Federal Reserve that substantially expands credit in an economic system stalled due to low inflation or crises. QE was widely employed during 2008’s Great Financial Crisis as well. QE involves printing more Dollars that will then be purchased by financial institutions for high grade bonds at auctions – in turn weakening its currency against rival nations such as Japan or Germany.

Quantitative tightening (QT) is the opposite process to quantitative easing (QE), in which the Federal Reserve stops purchasing bonds from financial institutions and does not reinvest principal from maturing bonds to purchase new ones; thus creating negative value effects in relation to US Dollar value. It typically boosts US currency appreciation.