To consolidate, US markets closed today – OCBC

US data from last Thursday/Friday where core inflation, 1-year inflation expectations eased, second quarter GDP was revised higher and personal spending rose – suggests the US economy is on its way to a soft landing . Such a scenario remains consistent with our call for no panic and a gradual pace of Fed tapering – 50bp cut for this year starting in September, notes OCBC FX analyst Christopher Wong.

There are three scenarios for the US data

“The US dollar (USD) and markets may be more sensitive to a busy week of US labor market releases, including ISM employment data (Mar), JOLT job openings (Wed), ADP hiring, U.S. employment ISM services (Thursday) and the all-important US payrolls report on Friday. Interpretation of the data may be difficult this time, given that markets are already pricing in a very favorable outcome for the Fed this year (roughly 100 bp cut; 31% chance of 50 bp cut in September).

“We have identified 3 possible scenarios: 1/ if US data comes in much better than expected. US stocks may rise, USD may rise as Fed tapering expectations ease. 2/ If US data comes in much worse than expected. Then the soft landing view can be questioned. US stocks are at risk of being sold off (remember the market crash on August 5). 3/ If US data is broadly in line with estimates – not good, not bad. This supports the soft landing story.”

“DXY was last at 101.66. Daily momentum turned slightly bullish, but RSI growth moderated. We still see some risk of additional short tightening, but bias to reduce rallies. Resistance at 102 (21 DMA), 102.20 (23.6% fibo retracement from 2023 high to 2024 low). Support at 100.50 levels. Clean break highlights 99.60. US markets are closed today for the labor market holiday.”