Modest Gains for the Dollar as the NFP Exceeds Expectations

Choppy Price Action Ahead of U.S. Inflation Data.

Friday’s U.S. jobs data came out surprisingly better than anticipated, with all three indicators in the green; the greenback was quick to react, posting gains against its counterparts. The Average Hourly Earnings increased 0.5% (forecast was 0.3%), the Unemployment Rate dropped to 3.5% (forecast was 3.6%), while the third and most important, the Non-Farm Payrolls showed that 528K jobs were created, vastly exceeding the forecast of 250K.

ECB hawkishness drove the Euro higher last week but the single currency was forced to give ground against the US Dollar as the latter benefited from the positive jobs data. The second week of August lacks any major data for the Euro but traders should be on the lookout for some important US Dollar moves. The catalyst for those moves will be the always important U.S. Consumer Price Index, which is one of the main gauges of inflation.

Key Data for the Week Ahead

The first event of the week is scheduled for Wednesday at 12:30 pm GMT: the U.S. Core Consumer Price Index. The CPI shows changes in the price paid by consumers for a basket of goods and services they purchase and the Core version excludes food and energy from the calculation. This version is the one that the FOMC pays the most attention to, and is known to create more volatility than the vanilla version.

The forecast for the Core CPI is a change of 0.5%, while the previous reading was 0.7%. If inflation does indeed slow down, it will affect the pace of rate hikes delivered by the FOMC and inevitably, the US Dollar’s movement.

Thursday at 12:30 pm GMT, traders should keep an eye on the Producer Price Index, which shows changes in the price that producers charge for their goods and services. It has inflationary implications and can be a notable market-mover.

The final event of the week will be the release of the U.S. Preliminary Consumer Confidence, which is a survey that acts as a leading indicator of consumer spending with a medium impact on the USD. The release is scheduled for Friday at 2:00 pm GMT and the expected reading is 52.5.

Technical Outlook – EUR/USD

The pair is currently trading at 1.0180 after some back and forth and choppy movement over the last couple of weeks. The US Dollar received a boost from the NFP report last week but it wasn’t enough to bring the pair out of its range.

For the time being the resistance at 1.0270 is doing a good job stifling upwards momentum, while support sits between 1.0110 and 1.0130. A break of one of these zones is could trigger stronger movement in that direction and the U.S. inflation data that comes out later in the week will likely play a major role in a potential breakout.