Post FOMC, the next test for the USD will be NFP

Twenty-four hours after the final rights were read to First Republic Bank, the market aimed and fired at its next regional banking targets. PacWest Bancorp dived 27.8%, Western Alliance Bancorp fell 15.1%, and HomeStreet Inc fell 14.46%, firming the next regional banks likely to fail as regulators continue to dither over how to protect deposits at all banks and end the banking crisis.

Adding to the banking gloom hanging over markets and providing another reason for the overnight retreat in the US dollar, Job Openings and Labor Turnover (Jolts) job openings showed that the number of job openings in the US dropped by 384,000 to 9.6 million in March, the lowest level since April 2021.

The Jolts job openings data is viewed as a reasonably reliable guide to labour market health. It is followed tonight by a second labour market indicator, the ADP Employment Report, and then the big one Non-Farm Payrolls (NFP), on Friday evening, which will move to front and centre once FOMC and Apple's earning reports are out of the way tomorrow morning.

What is expected from the ADP Employment Report and NFP?

ADP Employment Report

• The ADP employment report is released tonight, the 3rd of May, at 10.15pm AEST
• The ADP report isn’t an exceptionally reliable guide to Non-Farm Payrolls and has underperformed relative to nonfarm payrolls in 2023.
• Nevertheless, The market expects a 148k rise in ADP payroll employment in April from 145k in February.

NFP

• Non-Farm Payrolls is scheduled for release on Friday night, the 5th of May, at 10.30pm
• The market is looking for payrolls to rise by 180k in April, slowing from 236k in March
• The unemployment rate is expected to rise to 3.6% in April from 3.5% in March
• The participation rate is expected to remain unchanged at 62.5%, and average hourly earnings are expected to rise by 0.3%, keeping the annual rate steady at 4.2%.

DXY technical analysis

After peaking in September 2022 at 114.78, the DXY index fell over 12% to a low of 100.82 as the market anticipated the Fed would move to slow and then end its rate-hiking cycle.

In 2023, the DXY has traded in a holding pattern between 100.80 on the downside and 105.80ish on the topside, largely reflecting uncertainties around the banking crisis and the extent of the growth slowdown in the US and globally.

In recent weeks the DXY has been capped by resistance at 102.40/50 and is currently eyeing the bottom of its range at 100.80ish. Should support at 100.80ish break on a sustained basis, we expect the DXY to test horizontal support coming in at 99.50/40.

Until then, allow for further sideways-range trading.

DXY daily chart

1. TradingView: the figures stated are as of May 3, 2023. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.