The US Dollar stabilized early Thursday after significant losses on Wednesday. Traders are looking forward to new employment data. Important events to note include European Retail Sales figures and US Initial Jobless Claims. Recent US reports showed the private sector lost 32,000 jobs in November, much worse than the expected gain of 5,000 jobs. The ISM’s Services PMI edged up slightly, but the Employment Index continues to show job losses. The USD Index fell to its lowest point since late October before making a small recovery. Table data indicated that this week, the USD was weakest against the Australian Dollar, dropping by 0.93%. During Asian hours, the Bank of Japan expressed caution regarding future rate hikes, while USD/JPY remained stable below 155.50. EUR/USD hit a recent high but then corrected to about 1.1650. GBP/USD increased by over 1% on Wednesday, staying above 1.3300. Meanwhile, AUD/USD continued its upward trend, trading above 0.6600. Despite the weak USD, gold prices remained stable below $4,200.

Key Economic Indicators

Employment levels are crucial for evaluating the economy, as they impact consumer spending and inflation. High wage growth can increase spending but may also lead to higher inflation, drawing attention from central banks. The US Fed emphasizes employment and price stability, while the ECB aims to control inflation. However, all agree that employment is essential for economic health and understanding inflation. The unexpected drop in private sector jobs signals significant weakening in the US labor market. This isn’t just a one-time occurrence, but a sign that a cooling trend has been developing for months. This slowdown is expected after the Federal Reserve’s strict monetary policies throughout 2024. Supporting information shows job openings have been declining all year, recently reaching their lowest level since early 2024. With today’s Initial Jobless Claims figures still pending, we expect more evidence of this trend, especially since continuing claims are rising toward two-year highs. This consistent pattern strengthens the case for a dovish shift in Fed policy.

Trading Strategies

For derivative traders, this situation suggests preparing for ongoing US Dollar weakness, especially against currencies like the Australian Dollar and Euro. According to the CME FedWatch Tool, market pricing now indicates a greater than 60% chance of a Fed rate cut in the first quarter of 2026, a sharp increase from last month. Buying out-of-the-money put options on the USD Index or call options on EUR/USD set for January or February 2026 could be effective strategies. We should also keep an eye on the USD/JPY pair. The Bank of Japan’s comments add complexity, but ongoing US weakness will likely continue to push the pair lower in the coming weeks. Gold’s lack of strong rallies despite the falling dollar is unusual and suggests that the market is currently more focused on real yields. This makes currency options a more straightforward way to trade the weakening employment outlook in the US. Create your live VT Markets account and start trading now.

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