The US dollar continues to receive smooth support due to several factors. The first of which is the expectation of an increase in interest rates by the Fed next week. The second is the adoption of a new tax code which should, in theory, provoke a growing demand for dollar assets. Another important factor is the emerging economic statistics which demonstrates the continued upward trend in the economy.
Data on the number of new jobs in the private sector from the ADP which was published on Wednesday showed better values than predicted. Job growth was at 190,000 while the consolidated forecast included an increase of 186,000 new jobs compared to a figure of 235,000 in October.
The reaction of the market to positive figures was rather low-key. The dollar added against the major currencies but then surrendered its positions. It was only in the beginning of the trading session in the States that the US currency began to grow smoothly relative to the main. Such a reaction can be explained by the fact that the market has already taken into account in its prices an upcoming interest rate increase of 0.25% to 1.50% next week and probably, the overall effect of tax reform. In any case, after the decision of the Senate to approve this reform in the foreign exchange market, there was no strong strengthening of the US dollar. It actually stayed at the same place which indicates the expected events in the future with two options for the development of events.
The first option was that the market actually took into account the tax reform and would continue to focus on inflation indicators as the main ones for the Fed decision on rates while, of course, looking back at the results of the tax reform. The second option can be that the market wants to see the details of the tax code and assess its fair impact on the economy and the attractiveness of purchases of dollar assets. If it turns out that this will indeed be promising, then we should expect an increase in demand for dollars. However, if such expectations are not confirmed, then we should not wait for the continuation of the dollar rally.
Forecast of the day:
The EURUSD pair is trading below the 1.1800 level, remaining in the short-term downtrend. We can assume that it may fall to our target level of 1.1715.
The GBPUSD pair strengthens the downward trend on the wave of growing fears that this week there will not be an agreement on Brexit between the UK and the EU. Based on this, we assume that the pair will continue to decline to 1.3300.
