3 reasons to sell the US dollar ahead of Friday’s NFP report

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The first trading week of the month started with US stocks bouncing hard from their 2022 lows. Also, the US dollar gave up some of its gains.

Much has been discussed about the impact of the negative impact of a strong dollar on emerging economies and, in fact, on the global economy. In that respect, the recent weakness is seen as encouraging.

So here are three reasons to keep selling the US dollar ahead of next Friday’s September NFP report:

Softening employment in the manufacturing sectorJOLTS declined more than expectedThe US dollar is well off its highs

Employment in the manufacturing sector softened

Last Monday, the ISM Manufacturing data came out worse than expected. So while the sector keeps growing, it does so at a slower pace.

Moreover, the employment component softened, as discussed in this article.

It suggests that the overall labor market in the United States is softening too, which may lead to the Fed changing its course of tightening financial conditions.

Job openings declined more than expected

JOLTS report for August, or the job openings data, was the 2nd worse on record. More precisely, US companies canceled looking for 1m new workers.

This is just another piece of information suggesting the labor market in the US is softening. Hence, the bets against the dollar should increase.

Sure enough, job openings still exceed total unemployment, but the decline is so sharp it makes one wonder what comes next.

The US dollar is well off its highs

Finally, the US dollar is well off its highs. Take the EUR/USD exchange rate, for instance. It rose from 0.95 to parity in just a matter of a few trading days.

It means that traders bet on the Fed backing down on its tightening plans. If that is the case, expect more of the same to come in the days ahead. That would be especially true if today’s ADP data and Friday’s NFP report miss expectations too.

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