Dollar Moves Up, But Expects More Losses
The dollar inched higher in early European forex trading on Monday. This followed Friday’s better-than-expected employment report.
However, doubts remain about the U.S. economic recovery. Therefore, gains are likely to be short-lived.
Non-farm payrolls increased by 1.763 million in July. It was against the estimated 1.6 million increase, data showed on Friday. The unemployment rate decreased to 10.2% in July, compared to June’s reading of 10.5%.
Analyst James Knightley at ING said in a research note, that this was a better-than-expected result. The risk is this eases the pressure on politicians to agree on an immediate fiscal deal, he said.
Knightley added, with confidence already under pressure, incomes being squeezed by benefit cuts and Covid containment measures hurting job prospects. He said, they are entering a more challenging period for the economy.
The August jobs report is going to be worse. The economic effects of the Covid-19 containment measures increasingly bite.
The Dollar : Executive Orders
U.S. President Donald Trump kept his promise to take executive action. That is if the U.S. Congress failed to reach a consensus over the country’s latest stimulus measures. He signed four executive orders over the weekend related to Covid-19 economic relief.
The orders would provide an extra $400 per week in unemployment payments. That is less than the $600 per week passed earlier in the crisis.
However, doubts remain about the legality of the orders and whether they would achieve the desired impact.
Meanwhile, White House officials and congressional Democrats on Sunday expressed a willingness to compromise on another stimulus package. This seeks to bolster the stalled economy, but said no talks were planned.
Marc Chandler, Chief Market Strategist at Bannockburn Global Forex said, the recent price action lends credence to their view. That a technical consolidative/corrective phase is at hand.
Further near-term dollar recovery looks likely but does not change their longer-term bearish outlook.
A bottom was carved and tested near 92.50, it’s potentially a double bottom. It requires a move above 94.00 needed to confirm it, though others might not be convinced.
Until the 94.50 area (20-day moving average) is surpassed, Chandler added.
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