US Dollar Forecast: Focus Shifts from Risk Rally to the Fed, NFP

The US dollar’s weekly outlook remains neutral as the currency faces a series of pivotal events that could shape its trajectory in the coming days. Here’s a breakdown of what to watch for in the week ahead:

Late USD Surge to Be Tested This Week

The week kicks off with the Treasury’s quarterly refunding announcement, shedding light on how the US government plans to fund itself. Wednesday brings potential concerns about US economic growth, especially if ISM manufacturing PMI data reflects a contraction, following a similar trend seen in the S&P Global version.

On Wednesday, all eyes will be on the FOMC statement, where the committee is expected to maintain the fed funds rate. However, market participants will closely scrutinize the Fed’s assessment of growth and inflation risks. Finally, the week concludes with the release of the Non-Farm Payrolls (NFP) report on Friday, with the dollar expected to display further resilience.

While Friday’s late push hinted at a bullish continuation for the dollar, recent market sentiment favoring riskier assets has somewhat sidelined the greenback.

Risk Rally Helps Aussie Claw Back Recent Losses

The Australian dollar capitalized on the recent risk-on sentiment, staging a recovery after experiencing sharp declines. The Aussie gained ground as fears of escalated tensions in the Middle East eased and major tech stocks reported positive earnings. Given its historical correlation with the S&P 500, the Aussie surged alongside the US index, which saw a volatile recovery driven by strong earnings from mega-cap stocks.

Moreover, upbeat Aussie inflation data further bolstered its gains, effectively eliminating expectations for rate cuts by the Reserve Bank of Australia in 2024. With upcoming earnings reports from tech giants like Apple and Amazon, continued risk-seeking behavior could propel the Aussie higher. Immediate challenges for the Aussie include trading above the 50 and 200-day simple moving averages, with 0.6590 emerging as the next key resistance level.

In summary, the focus in the week ahead will be on pivotal economic events, including the FOMC statement and NFP report, which could dictate the direction of the US dollar amidst ongoing market volatility and risk sentiment.

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