Dollar remains king ahead of NFP

A resurgent Dollar rattled the financial markets on Wednesday with most currencies kneeling to the greenback following the firm ADP Non-Farm employment figure of 177k which heightened hopes over the Federal Reserve raising rates in 2016. With US labour repeatedly displaying signs of resilience in a period of global uncertainty, part of the prerequisites for the Fed to take action this year may have been achieved. This has been a solid week for the Dollar and the string of positive economic data release could entice bulls to send the Dollar higher as optimism rises over the Fed breaking its tradition of central bank caution.

Although there have been ongoing talks of there being a live meeting to raise US rates in September, such could be slightly abrupt with the possibility that the Fed will digest further positive data to support hiking rates in December. With an increasing focus on US data as an attribute to fulfil the conditions of a rate increase, much attention may be directed towards Friday’s NFP report. If the Non-Farm payroll for August exceeds expectations, then the central bank may be offered another compelling reason to pull the trigger in December.

The rising optimism over the Fed taking action this year has propelled the Dollar Index above 96.00. This Index is turning bullish on the daily timeframe as prices are trading above the 20 SMA. Previous resistance around 96.00 could transform into a dynamic support which encourages buyers to send prices towards 96.50.

UK Manufacturing PMI in focus

Sterling bulls made a valiant effort to reclaim control on Wednesday with the GBPUSD lurching towards 1.3150. While bulls may be commended on their efforts to elevate the GBPUSD higher, it has nothing to do with an improved sentiment towards the Sterling but Dollar instability from the fluctuating expectations over the Fed taking action this year. Sterling remains chained by the Brexit uncertainty which has haunted investor attraction towards the currency, while speculations of further easing by the BoE continue to entice bears to install repeated rounds of selling. Investors may direct their attention towards the UK Manufacturing PMI for August which may offer some clarity on how the manufacturing industry is faring post-Brexit. A further contraction in manufacturing may rekindle fears over a slowdown in economic momentum consequently bolstering hopes of the BoE easing further in 2016. On the other hand, the Sterling could be offered a lifeline if an upbeat manufacturing PMI release quells easing speculations.

The GBPUSD has been flung onto a chaotic roller coaster ride with prices sharply swinging between losses and gains amid Fed hike hopes. Sterling remains heavily pressured and the divergence in monetary policy between the BoE and Fed could entice sellers to attack the GBPUSD. From a technical standpoint, prices are trading below the daily 20 SMA while the MACD has crossed to the downside. A breakdown below 1.3100 may open a path towards 1.2900.

Commodity spotlight – Gold

Gold remains under immense pressure with the metal breaking below the firm $1315 support as the growing expectations over the Fed raising US rates this year continues to encourage bears to install heavy rounds of selling. It should be kept in mind that although Gold is very attractive in times of uncertainty, the metal is zero yielding and also priced in Dollars which make it very vulnerable to rate hike speculations.

Friday’s NFP could be a critical attribute which will decide where Gold trades towards in the coming weeks with a strong employment report potentially leaving prices vulnerable to heavy losses. From a technical standpoint, prices are trading below the daily 20 SMA while the MACD has crossed to the downside. Previous support at $1315 could transform into a dynamic resistance that encourages a further decline towards $1285. While the technicals are currently firmly bearish, an extremely weak NFP would destroy the hopes of the Fed raising rates in the short term and could offer Gold a lifeline.

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Otunuga is a research analyst at FXTM