The Greenback Takes a Heavy Blow From Weak NFP

Focus Shifts towards Inflation Numbers

The Non-Farm Payrolls report released Friday not only disappointed but also shocked the US Dollar bulls by showing that only 266K jobs were created during April, while the anticipated number was 990K.

  • disclaimer – The NFP is a highly flawed data point. It is the difference of two faulty estimates that are in turn revised twice. We expect to see the NFP surge with the reopening, it’s only a matter of time.

This tremendous miss triggered US Dollar weakness and prompted the greenback to fall to a more than two-month low against its major counterparts. The GBP/USD is currently trading at 1.4065 (was trading at 1.3880 before the report’s release) and the EUR/USD is now trading at 1.2160, which is more than 100 pips higher than it was Friday.

However, the week ahead holds two important releases (inflation and retail sales) that could reverse the dollar losses, or increase them, depending on the outcome.

Key Events for the Week Ahead

Bank of England Governor Bailey will make several appearances this week, the first being Tuesday, May 11 at 2:30 pm GMT, when he will participate in a panel discussion on the topic of Secured Overnight Financing Rate. Audience questions are expected, which means that we may see some movement on Pound pairs. A day later, at 9:00 am GMT, he will speak at an online event organized by the International Swaps and Derivatives Association.

On the US Dollar side the most important release of the week is scheduled for Wednesday, May 12 at 12:30 pm GMT: the Core Consumer Price Index, which tracks changes in the price that consumers pay for a basket of goods and services. The Core version excludes food and energy and usually, the FOMC pays more attention to this version. The expected reading is 0.3% and higher numbers are indicative of rising inflation.

Friday, May 14 at 12:30 pm GMT we shift our attention to the U.S. Retails Sales and Core version of the same indicator. Sales made at retail levels represent a major part of the entire economic activity and this is what makes the release important. The forecast is a change of 1.0% from the previous 9.8% and usually, numbers above expectations strengthen the greenback.

Chart Analysis – GBP/USD

Due to the recent US Dollar weakness, the pair managed to climb above the bearish trend line seen on the Daily chart below, and above the key resistance at 1.4000. This sudden burst of upside momentum is likely to continue until price reaches the lower boundary of the rising channel that confined the pair since September last year.

If price action re-enters the channel and breaks above 1.4200 it will likely resume the long-term uptrend but in the short-term, the greenback will be affected by inflation and retail sales numbers, which will play a key role in the pair’s direction.