Dollar's Strength Hinges on Upcoming Employment and Inflation Figures

Shareholders are watching with concern as the US Dollar Index and bonds rise, making stocks less attractive. However, the NASDAQ has held onto its value while competitors struggle due to artificial intelligence. Nonetheless, analysts continue to advise an expensive Dollar and rising bond yields are likely to pressure the stock market. The price of the NASDAQ has declined by 4.40% since September 15th, while the S&P 500 has depreciated by 5.00% and the Dow Jones by 4.50%. However, analysts are indicating with higher yields and potentially another 0.25%, the stock market does have the potential to decline further. 

The US Dollar Index has risen to 107.50, 0.16% higher than the day’s open price, but has slightly retracted as the European session has opened. For the first time in 2023, the US Dollar Index has risen above the 50% mark of the 52-week range. However, Friday's lower PCE Price Index is a negative factor for the Dollar. For the Dollar to maintain its momentum, inflation this month must indicate a hike is likely in November. Without a hike, the US Dollar will likely return to previous levels. The worst-performing currency of the day is the Swiss Franc, which has come under pressure again from lower inflation. Swiss Consumer Price Index fell to -0.1%, providing an opportunity for traders aiming to short. 

The cryptocurrency market spiked to its highest level since August after increasing more than 6.10% over the past two days before retracing. Some cryptocurrency experts are advising the upward price movement is due to the liquidation of a significant volume of short positions in the market. Others state it is due to investors believing interest rate hikes will end. The market share of Bitcoin has risen to 42.27%, but a larger upward trend in the near term is unlikely, while risk appetite remains low. 

NASDAQ

The NASDAQ was one of the few indices globally to hold onto its value on Monday due to its correlation with the AI Sector. The NASDAQ is also increasing during this morning’s pre-market hours, rising a further 0.17%. This morning, the global stock market has improved, indicating a “risk-on appetite”. A positive factor for the NASDAQ was the lower inflation data, lower oil prices over the past four days, and AI. However, technical and fundamental analysts continue to point towards signals of a further decline. 

For example, the price action forms an ascending triangle pattern, indicating a strong resistance level. But it must be noted, an ascending triangle pattern does not indicate an instant decline. However, sell signals will likely materialise if the price declines below $14,826 and $14,799. Investors should also consider that the index is now trading at a previous resistance level.

NASDAQ 2-Hour Chart on October 3rd

Within the index, 49% of the components either held onto their value or gained during yesterday’s session. However, the NASDAQ saw mainly positive price action due to the stocks holding a higher “weight” performing well. The best-performing stocks within the index were Zscaler, rising 3.41%, NVIDIA, rising 2.95%; and Alphabet, rising 2.53%. Alphabet and NVIDIA were particularly influential as they hold a weight of 10.56%. The worst-performing stock was Sirius XM Holdings, which declined by 4.65% but only held a weight of 0.15%.

Positive dynamics are developing against a temporary resolution of the crisis surrounding the approval of the US budget: over the weekend, congresspersons managed to reach a consensus for 45 days, and on Saturday, President Joe Biden signed the decree. Now, Senate and House of Representatives members can continue negotiations on the budget. However, experts voiced caution that in a month, the situation will be unchanged, and the government will again be on the verge of shutdown since Democrats and Republicans have too many contradictions on the items and amounts of government spending.

EUR/USD

The EUR/USD started the day lower after a very strong decline the day before, but the price movement improved as the European Cash Open started. The exchange rate this week fell to its lowest level since April 2022. Investors should also note that the Euro is performing well against all currencies this morning, but experts still favour the Dollar. According to experts, the price of the Dollar will depend on the upcoming employment data and this month’s inflation data. Technical analysis, including crossovers, price action and regression channels, point towards a downward trend. 

Regarding employment, this afternoon’s JOLTS of Job Openings will likely trigger higher volatility and potentially another impulse wave. If the data from job vacancies over the past month reads higher than 8.83 million, the Dollar will likely strengthen due to the sector's resilience. However, the main event for the week will be Friday’s official employment data. Analysts expect the US Unemployment Rate to fall from 3.8% to 3.7% and the Employment Change to read 169,000. Such data would indicate a slowdown in the economy but not enough to dishearten the Federal Reserve. If the Non-Farm Payroll figure reads higher than 180,000, the Dollar will potentially continue its trend until the upcoming inflation data.

EUR/USD 30-Minute Chart on October 3rd

Summary:

• Shareholders are watching with concern as the US Dollar Index and bonds rise, making stocks less attractive. 
• The US 10-year Bond Yields rise to 4.675%, renewing the investment’s highs for 2023. Shareholders fear high yields can trigger a selloff in the stock market.
• The best-performing stocks within the index were Zscaler, rising 3.41%, NVIDIA, rising 2.95%; and Alphabet, rising 2.53%. 
• Analysts expect the US Unemployment Rate to fall from 3.8% to 3.7% and the Employment Change to read 169,000.