Forex overview. US Dollar Holds High Ground, but Risk Premium May Fade If JOLTS Data Softens – ForexNews.PRO
The US dollar’s recent decline is fueled by disappointing economic indicators, such as the ISM manufacturing index, coupled with heightened concerns within the bond market. However, the risk premium remains near its April peaks, suggesting that weak data alone might not drive the EUR/USD pair significantly beyond 1.15 unless there’s a more pronounced sell-off in the Treasury market. The market’s focus is also on Poland’s election outcome.
USD: Strategic USD Shorts Quickly Re-Emerge
The dollar’s weakening trend accelerated early in the week, primarily due to growing uncertainties surrounding trade and escalating apprehensions from bond market participants regarding the US deficit. The latest ISM manufacturing surveys revealed unexpected weakness, reversing the previous trend of robust US economic data.
The significant drop in the export index to a five-year low could indicate the adverse effects of retaliatory measures, further impacting the broader manufacturing sector already affected by trade policy uncertainties and reduced consumption.
Today’s focus will be on the April JOLTS report, with close scrutiny of job openings and layoffs. A decline in durable goods orders for April is also anticipated. Further disappointing data, particularly in the labor market, could push the dollar back to its April lows.
However, the vulnerability of the US bond market remains a key concern. The USD risk premium in the DXY index below 98.0 appears difficult to justify solely based on weak growth expectations, potentially requiring further weakness in Treasuries to decline further.
Trade developments remain critical. Reports suggest that China is gaining leverage over the US through its control of chip supply chains and rare earth elements. A positive surprise could potentially aid the dollar at some point this week.
EUR: Not in a Prime Position to Rally
The Eurozone’s flash inflation estimates for May are being released this morning. The ECB is widely expected to revise its projections lower as it cuts rates this week. Given our dollar view above, we don’t see EUR/USD pushing into the 1.15-1.20 range unless we see more material Treasury instability.
