It has been another rough trading week for the Dollar as a ‘patient’ Federal Reserve fuelled speculation over a possible pause to US monetary tightening this year.
Friday’s main risk event for the Greenback and potential market shaker will be the US jobs report for January, which should offer fresh insight into the health of the US labour force. With the US economy facing multiple headwinds in the form of fading fiscal stimulus and lagged effects of last year’s aggressive monetary policy tightening, today’s jobs report will certainly attract extra attention. Markets project the US economy to have created 165k jobs in January, with average earnings down by 0.3%, while the unemployment rate is predicted to remain steady at 3.9%.
There is a risk of the US jobs report printing below expectations, especially when considering how the 35-day government shutdown is seen distorting some key figures – with unemployment in mind. While every section of the report is of significant importance, investors will be keeping a very close eye on wage growth. Signs of wage growth struggling to accelerate is poised to stimulate concerns over subdued inflationary pressures, a point the Federal Reserve made in January’s FOMC policy meeting.
The Dollar’s depressed price action this week suggests that bulls are tired and clearly in trouble. A disappointing jobs report should place bears back in the driver’s seat with the Dollar Index seen sinking towards 95.00. A solid weekly close below the 95.00 level should encourage a steeper decline towards 94.20.
Commodity spotlight – Gold
Gold has shone with great intensity this week reaching levels not seen in eight months thanks to a dovish Federal Reserve, geopolitical risks and a broadly weaker US Dollar.
The yellow metal concluded January on an incredibly positive note with prices trading around $1,321 as of writing. Market expectations over the Federal Reserve taking a break on rate hikes and persistent concerns over slowing global growth are themes that will ensure Gold remains in fashion. Appetite towards the precious metal could receive another boost this afternoon if the US jobs report is unable to meet market expectations.
Focusing purely on -technical aspects, Gold fulfils the prerequisites of a bullish trend on the daily charts as there have been consistently higher highs and higher lows. A solid weekly close above the $1,324 level may open a clean path towards $1,340. Bulls remain dominant and in control above the psychological $1,300 level.
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