The dollar strengthened only for a moment?

Moderate slowdown?

Friday's NFP data suggest that the economic slowdown that comes as a result of the Fed's dynamic rate hikes will be probably only moderate. The change in employment in the non-agricultural sector amounted to 236 thousand. which was close to the market consensus. The unemployment rate fell to 3,5 percent, which was a surprise. Although there is a slight deterioration in employment change data, as suggested by the JOLTS survey a few days earlier, the numbers are still solid and will allow the Federal Reserve to take another restrictive step in May.

Usually it's like that the recession becomes significant as a result of the increase in the unemployment rate, which puts pressure on private demand, thus compounding the initial weakness of the economy. So far, official data shows that nothing like this is happening. The labor market is very resilient. Despite this fact, the USD is not strengthening significantly. An economic slowdown accompanied by a relatively strong labor market may still be classified as a recession, but it may be less significant for the USD exchange rate. This is because the recession will not be deep and therefore will require fewer adjustments in monetary policy

USD will weaken again

It can be said that the USD has problems with appreciation even though there are many factors in the market that can should have a positive impact on the "green". One of them is the rising price of oil, which makes the so-called US terms of trade are improving. Another is the Fed, which seems to be more determined to maintain restrictive monetary policy longer than currently assumed by the market. Added to this is a combination of the economic and inflation outlook.

Tomorrow's CPI reading and Fed minutes will certainly be important for the EUR/USD exchange rate. Headline inflation is expected to fall to 5,2% year-on-year, according to the consensus. from the level of 6 percent. a month earlier. Forecasts show simultaneously an increase in the base index to 5,6 percent. from 5,5 percent previously. The market may also react to notes from the last meeting of the Federal Reserve, although the room for changing the interpretation of views of FOMC members is very limited.

In theory, lower-than-expected consumer price numbers should cause the USD to weaken again. Eurodollar still trading are on an upward path, despite this temporary strengthening of the USD. The structure of higher and higher highs and lows in the chart has not been negated, suggesting that reaching the 1,1 level is very real and the only question is when it will happen.

Source: Łukasz Zembik, OANDA TMS Brokers