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U.S. Dollar: 2 Reasons Why Friday Is The Big Day

By Kathy LienForexAug 06, 2020 06:49PM ET
www.investing.com/analysis/us-dollar-2-reasons-why-friday-is-the-big-day-200533257
U.S. Dollar: 2 Reasons Why Friday Is The Big Day
By Kathy Lien   |  Aug 06, 2020 06:49PM ET
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Tomorrow is a big day for currencies, equities and Treasuries. It's Congress’ self-imposed deadline for a stimulus package and the scheduled release of nonfarm payrolls. Based on the decline in the U.S. dollar, investors are worried that job growth will slow and the deadline will pass with no agreement. According to House Speaker Nancy Pelosi, there’s light at the end of the tunnel, but Democrats and Republicans still can’t agree on topline numbers, so there’s probably an 85% chance that Friday will pass with no deal. According to White House Chief of Staff Mark Meadows, if nothing happens by tomorrow, his optimism will “fall off the cliff exponentially.” 
 
To complicate the scenario, President Donald Trump, frustrated with lack of progress by Congress, said he expects to sign executive orders Friday or Saturday to extend enhanced unemployment benefits, impose a payroll tax holiday, provide eviction protection and student loan repayment relief. It's unclear if Trump really has the power to make these changes because Congress passes tax laws, not the president. However, it may be within his means to defer taxes and extend deadlines but not suspend them so employers may continue to collect taxes. He could also re-appropriate unused funds allocated to the CARES Act to extend unemployment benefits. And, as Pelosi said, Trump may have the power to extend the eviction moratorium on his own. Still, all of these questions worry investors and give them reasons to sell dollars.
 
Nonfarm payrolls is also a risk, which is why the dollar traded lower against most of the major currencies today. Economists are looking for nonfarm payrolls to rise by 1.48 million in July, which is a fraction of the increase they saw in June, but the worry is that companies added even fewer workers to payrolls last month. Not only did some of the most populous U.S. states tightened restrictions last month as virus cases hit record highs, but other economic measures reinforce the fear that job growth slowed.
 
The employment component of services ISM contracted at a faster pace, Challenger reported a 576% increase in layoffs, ADP reported that U.S. companies added only 167,000 jobs and consumer confidence fell across the board. Jobless claims were better but as we’ve long learned, fewer jobless claims does not translate into more hiring. If these indicators are right and job growth falls short of expectations, the U.S. dollar could tank, especially if it's accompanied by a weaker unemployment rate or average hourly earnings. Additionally, depending upon what happens with the stimulus bill and Trump’s executive orders, Friday could be a very ugly day for the dollar. 
 
Arguments In Favor Of Weaker Payrolls
 
1.    Employment Component of services ISM drops to 42.1 from 43.1
2.    Challenger Reports 576.1% increase in layoffs, up from 305.5%
3.    ADP reports 167K versus 4.3 million
4.    Consumer Confidence index drops to 92.6 from 98.3
5.    University of Michigan reports lower confidence as well
 
Arguments In Favor Of Stronger Payrolls
 
1.    4-week moving average jobless claims at 1.337 million versus 1.435 million previously
2.    Continuing claims at 16.1 million versus 17.7 million
3.    Employment component of manufacturing ISM contracts as slower pace, 44.3 versus 42.1
 
With that said, there are also a number of scenarios where the U.S. dollar could rise. For example, if payrolls beats the low forecast or average hourly earnings improves, Congress reaches a deal or the market seems pleased with Trump’s executive orders. Aside from NFPs, labor market numbers will also be released from Canada and, like the U.S., slower job growth is expected. Investors should keep an eye on Asian currencies with the release of PMI services from Australia, the RBA’s monetary policy statement and Chinese trade numbers.
 
U.S. Dollar: 2 Reasons Why Friday Is The Big Day
 

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U.S. Dollar: 2 Reasons Why Friday Is The Big Day

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Comments (38)
Wisdom Osita
Wisdom Osita Sep 19, 2020 2:46PM ET
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hello
George Pichurov
George Pichurov Aug 09, 2020 6:37AM ET
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U get married Friday?
Leroy savoie
Leroy savoie Aug 07, 2020 4:46PM ET
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what was the stall on the charts after the NFP that was a odd funday and its timing of the impulse move was delayed about 28 minute until my entry technically. But those readings for the unemployment rate the none farm employment change and the employment rate was and is incorrect.
Kerry Courter
Kerry Courter Aug 07, 2020 12:32PM ET
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Germany's numbers aren't that bad but their form of capitalism, or what ever they call it has protections built in to protect their workers. PELOSI wants a person who contracts COVID-19 to be able to sue their employer. there is no way to say for sure when or where you contracted the virus. thousands or million of law suites against our employers would put any hopes of recovery away for good. if you go back to work it is on you to social distance, keep clean and wear the proper ppe. The employer should do his part too. Besides, your employer can't be held responsible for what you do in your off time hours.
Esther nabare
Esther nabare Aug 07, 2020 2:38AM ET
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please Esther Nabare from Ghana and a beginner infact still learning forex trading but I know if follow you I will make it to the highest level thank you
James Sheehan
James Sheehan Aug 07, 2020 2:38AM ET
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I hope you win the chip
Kameron York
Kameron York Aug 06, 2020 11:35PM ET
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I like leading indicators, they tell me the future... haha
Đức Phú Nguyễn
Đức Phú Nguyễn Aug 06, 2020 11:35PM ET
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Thank you. Nice article!
Paul Tan
Paul Tan Aug 06, 2020 10:56PM ET
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Every country is concerned with employment.  US still being the world largest consumer market. I think US economy should do much better compare to the rest of world, given such as huge stimulus package.
Easy Trade
Easy Trade Aug 06, 2020 10:56PM ET
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Hi, lots of us no longer have jobs, which means no income, and historically very little savings. Who is going to consume in the near future?
Maycon Klann
Maycon Klann Aug 06, 2020 10:16PM ET
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For me, it's a lose-lose for USD. Regardless of the size of benefits, more money will be injected. Gold and silver are still heading higher. If any good news shows up tomorrow, there might be a pullback in metals - It can be a good time to buy. (not financial advice)
Hoa Nguyen
Hoa Nguyen Aug 06, 2020 9:50PM ET
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Should we keep or sell gold ?
Franklin García
Franklin García Aug 06, 2020 9:50PM ET
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I´m expecting to sell gold at 2100 but......should gold get there?, and if so.....would it fall? I don´t know, its RSI is currently 86 and if it gets to 2100 will reach 90 RSI so........Gold shouldn´t increase to reach 100 RSI
Tay Kwon
Tay Kwon Aug 06, 2020 9:50PM ET
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Franklin García  i like your "maybe possibly but what if not?" crazy market huh
Andrew Shurney
Andrew Shurney Aug 06, 2020 9:49PM ET
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stocks will rip higher. the worse the news, the better. Disney lost 4.5 Billion and moved up 12%. New jobless claims 1.2 M, but 1.4 expected, market goes up. All news, no matter how terrible gets spun into buy stocks NOW. So what if we're at 30 times earnings, it's not my money.
Easy Trade
Easy Trade Aug 06, 2020 9:49PM ET
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Because bad news brings more stimulus, and stimulus is better than a real market.
Imran Ali
Imran Ali Aug 06, 2020 9:27PM ET
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thanks... concise write up summarizing key events👍
Eduardo Saenz
Eduardo Saenz Aug 06, 2020 9:22PM ET
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thank You !!!!
Steven Goldberg
Steven Goldberg Aug 06, 2020 7:51PM ET
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Such pleasant news
Will Bradwell
Will Bradwell Aug 06, 2020 7:24PM ET
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good write up...NFP tomorrow seems like another negative for USD....
Asrodin prokhorov
Asrodin prokhorov Aug 06, 2020 7:03PM ET
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thanks
mavis sande
mavis sande Aug 06, 2020 6:46PM ET
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thank you kathy
Daniel Cunha
Daniel Cunha Aug 06, 2020 6:24PM ET
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Most likely they will start buying gold
Bubba Born
Bubba Born Aug 06, 2020 6:13PM ET
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All I know is that living overseas the exchange rate has dropped 5% so far this year for me. I may make money in the stock market, but am bleeding with the worth less buck!
KG Hussein
KG Hussein Aug 06, 2020 6:12PM ET
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Informative insights in your article. Thank you Kathy
Chris Black
ChrisBlackforex Aug 06, 2020 5:58PM ET
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Well its same like Jobless Claim was Shrugg off! A Data like that should play a Major Mover (but not?)Big Day tomorrow Thank you Kathy
Joeri Willems
Jurinho Aug 06, 2020 5:47PM ET
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Kathy, the dollar is plummeting because markets DO expect the US gov to spend big amounts of dollars (ea press dollars) on a new bill. If no bill is decided, the stock markets will tank, and the dollar (value) will go up.
Dizzle TheRizzle
Dizzle TheRizzle Aug 06, 2020 5:47PM ET
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My exact argument. And with the likelihood of them not passing it tomorrow i assume that will be the outcome.
Easy Trade
Easy Trade Aug 06, 2020 5:47PM ET
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Except everyone knows stimulus will come, if not now, than later. There's really no choice here. Economy is ded.
jj mm
jj mm Aug 06, 2020 5:46PM ET
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don't worry...stocks will keep going up...federal reserve will buy everything that smells a stock
Cristiano Dangelo
Cristiano Dangelo Aug 06, 2020 5:44PM ET
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Great article, thanks!
Jarod Seltenright
Jarod Seltenright Aug 06, 2020 5:41PM ET
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Author, please break between points. Very hard to read, one giant paragraph.
 
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