U.S. dollar futures gapped lower off the open on Thursday due to deteriorating trade headlines and the potential for disappointing U.S. jobs data Friday morning. September nonfarm payrolls are expected to increase by 90,000 jobs, compared to 136,000 in August. Furthermore, the Federal Reserve cut the fed funds rate another 25 bps on Wednesday, strengthening downside pressure on the greenback. Although the FOMC decided to cut another quarter point, they hinted at a potential pause in the rate cut cycle. The odds of a December cut are at 28% Thursday morning. The ambiguous attitude of the Fed can be credited to the strength of the labor market and the resilience of the American consumer. Being that consumer spending makes up 70% of GDP, the U.S. economy is unlikely to enter recession so long as the labor market remains strong and consumers continue to spend. This is the reason all eyes will be on Friday’s jobs number. Any weakness is likely to break the dollar down further, while a surprise beat is expected to hold Dec futures at the pivotal 97 support level. A close under 97 will antagonize sellers.
Meanwhile, foreign currency futures are moving to the upside this week, with leadership from the Australian dollar. European currencies are performing well but have been held back by another Brexit delay. Should the dollar break under the 97-support zone, investors should be bullish on all foreign currencies. Should there be further deterioration in trade talks, or a continued breakdown in economic data, the safe-haven currencies are likely to show leadership (i.e. the yen and the Swiss franc). The resilience of the U.S. dollar has kept other currencies suppressed. As the dollar weakens, a plethora of opportunities will be created as currency markets reverse trend. If you have any questions about how to get started trading currency futures, don’t hesitate to contact me directly.