The Dollar Outlook, Still Bullish
Strong NFP Points To Strong Economy
The Dollar Indicator unmoving a new high last calendar week and has since retreat. The retreat was sparked by net income-takers merely driven, finally, by an increased mind-set for both recession and FOMC rate cuts. The reason is simple, Manufacturing and Services were both weaker than prospective and channelis to 1) a recession in the U.S. manufacturing industry and 2) the need for stimulation. What I want to cue traders is the manufacturing economy is 1) only 10% of U.S. GDP and 2) been expanding at a moderate to robust pace for over trinity years. A trifle bit of contraction and consolidation within this sector is OK, necessary even, and nothing to worry about.
The stronger and by FAR bigger parcel of the economy is services and services, while slowing, is lul expanding. Services PMI was electropositive and, more significantly, labor markets are still very ruddy. Florid labor markets mean healthy consumers and healthy consumers spend. The trade war tin can be blamed for the U.S. manufacturing slump but it can besides be blamed on a shift in supply irons that is in turn around helping to drive U.S. employment numbers. In a nutshell, U.S. NFP information shows average jobs gains running near 160,000 per calendar month, the number of operative masses growing, the amoun of unemployed falling to a 50-year low, and wages showing solid increases YOY. No signs of corne, no need for stimulant, non for the tug market.
The CME's Fedwatch Tool shows a 75% chance for a cut at the next merging. I imagine this cut will come, if not this month then in December. What I don't think bequeath chance will be whatsoever more cuts this twelvemonth operating theater even next. PCE inflation has already begun to tick higher, another cut is going to be enough to get the re-focused thriftiness touring again. Basically, if and I say if the FOMC cuts rates at this next meeting they will probably indicate information technology is the last cut for a while, that the "midcycle adjustment" is over.
The DXY has pull in one's horns merely IT is still in an uptrend. The index is sitting above the short-term flowing average and already showing signs of support. Following week's data will be important for the outlook as it includes the FOMC minutes and CPI/PPI. Because the push on market is healthy pretentiousness data is all the FOMC has to pass. If inflation is tick higher or lucky there is no need for more cuts. A move up off the ongoing levels would be bullish but face impe&ce at $99.50. The indicators are mostly bullish, MACD is descending and stochastic has formed a bearish cross, but this set up is consistent with a set up for a bullish trend-following entry signal.
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