USD: Just volatility today, no new direction – Commerzbank

Today, markets will finally see US labor market data again. The foreign exchange market will certainly be looking very closely at the figures and all the details to find clues about the state of the US labor market and the implications for the Fed, Commerzbank's FX analyst Volkmar Baur notes.

Labor report’s influence limited amid Fed ideological split

"However, I doubt the significance of the labor market report, not only because the data was collected some time ago. Certainly, given that the labor market report for October has been cancelled and the report for November will now be published a week later, one might think that September has gained in importance. However, the minutes of the October Fed meeting seem to tell a different story. It seems to me that two camps are increasingly forming within the Fed, which are becoming increasingly antagonistic towards each other and whose differing opinions seem to be based more on ideology than on data. This means that minor indications as to whether the labor market cooled down somewhat more than previously thought in September or was actually more robust will probably not really change anyone's opinion on the FOMC."

"Shortly before the Fed's decision, we will at least receive the JOLTS report for October. Although I am not sure how the data for this report could have been collected during the shutdown, whereas this was not possible for the labor market report. But let's leave that aside for now. At least this will be another report with relatively up-to-date data that might be more likely to change the minds of Fed members. After all, we have been saying for some time now that rates such as the unemployment rate and the resignation rate better reflect the current situation on the labor market than the number of new jobs created, because the rates take into account the supply side of the labor market, and it is this side that is currently subject to greater uncertainty."

"But to cut a long story short: the only thing that will really determine a new direction for the US dollar in the coming weeks is likely to be the Fed meeting and how the decision that was ultimately reached there is justified. And I'm not sure how much influence the upcoming data will really have on this decision. However, this will not prevent the market from filtering out any potential information from all the data still to come. And that makes the FX market quite susceptible to volatility in the coming weeks."