USD could be hostage of previous US strong data releases

At the end of the week, we will see another part of the important statistics showing the strength of the US economy, which determines the market trend in the short term. The new jobs report, which showed more than 200,000 new jobs in May, allowed market participants to talk about the continued development of the US economy. This, along with the many good economic data coming from the United States, completely eliminated the suspicion that the Fed will rethink its forecast for 4 interest rises.

In addition, declining unemployment to 3.8% has led traders to be more prone to USD. Indeed, the US labor market has not seen better figures since the late 1960s, when industrialization in the country is at its peak.

Dollar traders, however, have to be protected from other risks. Trade disagreements between the United States and China cause an increase in inflationary concerns and, at the same time, raise concerns about future deliveries. This creates an environment in which inflation risks will be mainly external and short-term, and the internal inflationary impulse caused by wage growth will be very limited.

At the same time, there is some concern about the domestic growth rate. The results of companies in previous periods were so strong that they were unlikely to be able to support them in the coming quarters. The same can be said for employment: strong performance is unlikely to surprise the markets and trigger USD purchases, but weak numbers can cause a wave of anxiety and the sale of the US dollar will be a more likely scenario. In this way, the dollar can be held hostage to the strong economic performance in the recent past.

Simply put, traders have to keep up with worse data for both the NFP and the other important economic indicators. We must not forget the worse GDP that has fully proved the words above.

The technical dollar index failed to break the key resistance level, with NFP data tomorrow being crucial to the dollar's direction. I expect better data to take the DXY above the main zone of resistance and vice versa, worse to confirm the negative sentiment. At present, the fall seems more likely scenario.

Chart: Used with permission of Bloomberg Finance L.P.

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