USD Higher on Payroll Surprise

The US Dollar is trading higher across early European trading on Monday following an upside surprise in Friday’s US jobs data. The headline NFP reading was seen coming in well above forecasts at 272k vs 185k expected, up from 165k prior. Wages were also higher at 0.4% vs 0.3% expected and 0.2% prior. The only dark spot in the data was the lift in the unemployment rate which rose to 4% from 3.9% prior. The data has seen traders scaling back their expectations for a cut in September from the Fed. Pricing for that meeting has now shifted back in favour of an unchanged decision. While this outlook holds, USD is likely to continue higher near-term.

Inflation & FOMC on Wednesday

Looking ahead this week, all eyes will be firmly fixed on the US inflation report on Wednesday, followed by the FOMC meeting later that day. On the back of the upside we’ve seen in USD following Friday’s data, there is clear upside risk for USD this week if we see a fresh uptick in inflation. If seen, we are likely to hear a more hawkish message from the Fed which should create deeper support for USD near-term as traders push their easing expectations further out. On the other hand, if we see a downside surprise in CPI, this will see traders rebuilding their September easing expectations, leading USD lower.

Technical Views

DXY

The rally in DXY has seen price rebounding firmly off the 104.05 level with the index now back inside the bull channel and testing above 104.97. While above here, the focus is on a continued push higher with 107.04 the next upside target to note. To the downside, 104.05 remains key support.