Key facts
- US Dollar softened ahead of the Non-Farm Payrolls (NFP) report.
- Oil prices fell following news of a ceasefire in the Israel-Lebanon conflict.
- Expectations for the headline NFP reading are lower than the previous month.
- Market pricing for a Fed rate hike by year-end is around 50%.
- The US Dollar Index (DXY) is currently above the 99.15 support level.
The US Dollar is softening ahead of the latest US jobs report due this afternoon. This move is likely linked to the decline in oil prices, as traders react to news of a ceasefire in the Israel-Lebanon conflict. One perspective suggests that with a key condition for a deal with the US potentially met, talks might resume, although there is no current news to support this. On the data front, recent US indicators, including ISM, JOLTS, and ADP figures, have exceeded forecasts. Attention now shifts to the headline Non-Farm Payrolls (NFP) release. Despite the stronger data earlier in the week, expectations for today's NFP are set lower, contributing to the pre-data softening of the USD. The market anticipates a headline NFP reading of 85,000, down from the prior 115,000, with the unemployment rate expected to remain steady at 4.3% and wages projected to rise slightly to 0.3% from 0.2% previously. If these figures are met, they are unlikely to inspire a significant upward move in the USD today, potentially leading to continued pressure. However, an upside surprise in the data could drive the USD higher, reinforcing hawkish Federal Reserve expectations, which have been a recent focus. Market pricing for a Fed rate hike by year-end currently stands around 50%; an increase in this pricing could boost the USD in the near term. Conversely, if the data undershoots forecasts, leading to a larger-than-expected decline, the USD is likely to weaken significantly heading into the weekend. Technically, the US Dollar Index (DXY) remains above the 99.15 level after stalling and reversing around 99.50. A break back below 99.15 would shift focus to 98.24 as a deeper support level, while 100.36 is noted as a key upside target.