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USD: No reason for a recovery of the greenback – MUFG

Analysts at MUFG Bank point out the rally of the US dollar in Friday should not mean a change in the direction. They see the NFP next Friday as the key economic report and consider a reading under 465K could leave the dollar vulnerable to more weakness. 

Key Quotes:

“Today is month-end and with that we are seeing some supportive USD flows but we do not see these flows as a signal of any turn in fortunes for the dollar. Demand for non-dollar currencies should be maintained along with positive risk. In this context, yen selling is pronounced although versus the dollar this may becoe stretched soon while the OPEC+ meeting next week should in our view be supportive for crude oil prices and hence oil-related G10 FX.”

“The main economic data release in the week ahead will be the latest NFP report for May. The USD has continued to weaken following the disappointing NFP report for April which has placed a dampener on Fed rate hike expectations for next year. Market participants are less optimistic heading into the upcoming NFP report as they expect job gains of just over 600k compared to over 1 million ahead of last month’s report. It would suggest that there is less risk of disappointment although the consensus forecast is still above average monthly job gains so far this year of around 450k.”

“The USD was little changed in the initial aftermath of last month’s weaker than expected NFP report although it has since then weakened over the past month. The NFP report is becoming more important in determining USD performance. It will likely take much stronger job growth of closer to 1 million/month to significantly bring forward Fed rate hike expectations and strengthen the USD. In contrast, the recent pace of job growth so far this year of 465k or lower will be seen as consistent still with a gradual pace of tightening and leave the USD vulnerable to further weakness in the near-term.”
 

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