Dollar index snaps five day bear run

Friday, October 16, 2015

The dollar index managed to pare recent losses yesterday as the greenback recovered some ground against a basket of major currencies after five day bear run. Jittery global macro conditions and uncertainty surrounding the timeline of a Fed interest rate hike saw the USD index close 1.75% over the past five sessions as it hit a fresh six week low towards 93.845 on Wednesday as lacklustre US economic data further dampened the mood. However, appetite towards 93.800 improved yesterday and saw the dollar index recover much of the previous session’s losses as intraday moves saw the index climb towards 94.590 before it eventually ended the session at 94.371.

It has been a tumultuous few quarters for the USD and after rallying robustly throughout the end of 2014 and beginning of 2015 investors were hoping the bull run would continue as a rate rise in the US looked imminent amid a flurry of rosy manufacturing and labour market data. However, persistently low inflation owing to oversupply concerns in the crude oil market has prompted some outspoken Fed officials to comment that the FOMC should hold off from increasing interest rates this year. It’s this uncertainty that has seen the dollar index trade more or less rangebound since May.

Despite the jittery outlook investors were encouraged back into risk assets after yesterday’s initial weekly jobless claims came in below expectations. Initial claims for the week ending October 10th fell 7K w/w to 255K, well below the 270K median estimate. Continuing claims continued to fall at a steady rate this year, coming in at 2158K for the week ending October 3rd, reaching the lowest level since mid-2000.

While the headlines seem to be dominated with the fact that both continuing and initial jobless claims are pushing towards historic lows (initial weekly jobless claims have reached a low last seen in 1973!) the figures have been somewhat propped up by the fact that US labour force participation is at a 38 year low with 62.4% of the population actively participating in the labour force. If this worrying trend continues it could potentially distort the sanguine data points and statistics which paint the picture of a jobless recovery in the US. On par with inflation, Fed officials and market participants alike will be paying close attention to subsequent releases from the Bureau of Labor Statistics.

Dollar index snaps five day losing streak

DXY Curncy DOLLAR INDEX SPOT 2015 10 16 08 18 56

Initial weekly jobless claims drop to multi decade low

INJCSP Index US Continuing Jobl 2015 10 16 08 18 48

Events for today

1000

EZ

Aug

Trade Balance

1000

EZ

Sep

CPI

1415

US

Sep

Industrial Production

1500

US

Oct

University of Michigan Survey

LT: 

Nov  Brent Crude (ICE) 

Topics: US Fed, DXY, Unemployment
More from: Kash Kamal