DXY inter-markets: NFP’s size does matter

The positive surprise from July’s Non-farm Payrolls (255K) has boosted the greenback – tracked by the US Dollar Index – to fresh multi-day peaks around 96.30, or the 50% retracement of the July-August drop. Today’s results showed that health conditions in the US labour market remain strong, with June’s figures revised up to 291K and already leaving behind the miserable, albeit exceptional, prints from May. In addition, key Average Hourly Earnings have also surpassed expectations, rising at a monthly 0.3%.

The abrupt spike in USD remains sustained by a sharp correction higher in the US money markets, with US yields trading in fresh tops across the curve. The move has echoed in the Fed Fund future prices, with market participants now perceiving that a rate hike at the September meeting could well remain ‘on the table’. According to CME Group’s FedWatch tool, the probability of higher rates next month is around 10% and nearly 30% for December.

Looking ahead, the greenback has recovered half the way to pre-FOMC peaks in the 97.60 area, and further gains now seem likely to hinge on developments outside the USD-sphere, at least until the next relevant event in the US docket, which will be July’s Retail Sales and the advanced Consumer Sentiment gauge, all scheduled for next Friday.

That said, the next relevant hurdle for USD emerges at 96.64 (200-day sma). Once cleared, the 78.6% retracement at 97.05 is coming in next ahead of 97.62, July 25 top.