The first trading day of the year started in force with another leg lower taken by the U.S. dollar. From the moment the markets opened today, the U.S. dollar’s decline continued, with the USDJPY dropping below 103 and the EURUSD gapping higher at the opening.
This is the week of Non-Farm Payrolls (NFP) and should be treated as such. It is also the first trading week of the year, and many traders and investors want “back in the game,” meaning that new positioning will influence the flows too.
U.S. Equity Markets
The U.S. equity markets drove the price action in the last part of 2020. Ever since the U.S. elections were over, the dollar followed the equity markets religiously. Expect the same to happen at the start of the new trading year, as the two assets (i.e., the U.S. dollar and the equity markets) remain tightly correlated.
Economic Calendar for the Week Ahead
The week starts slow if we consider the economic events ahead. The OPEC-JMCC meetings begin today, so we may see some additional price action on the oil market. Other than that, it should be a classic start of the NFP trading week.
On Tuesday, the ISM Manufacturing PMI will highlight the trading day. Investors will have a close look at the employment component and what it suggests for the upcoming ADP and NFP data later in the week.
One day later, the ADP and the FOMC Minutes will drive the price action, together with the Factory Orders in the United States and the European Services PMI.
The Unemployment Claims on Thursday will be the last element to offer a clue about the NFP data one day later. At that stage, traders will know if the U.S. dollar has more room to fall or a reversal might be in the cards.
As a hint, a typical NFP week’s price action in the U.S. dollar is one that reverses the initial market moves as we come closer to Friday’s data. If this is such a week, it remains to be seen.
All in all, the start of 2021 has the chance to bring significant changes in the market. That is particularly true considering the fact that some people are still on vacation this week, so liquidity remains thin.