Markets Weekly Outlook: US Jobs Data in Focus as King Dollar Eyes Further Gains

The US dollar has begun 2025 on a strong note, reaching a two-year high as it has gained significant strength against other currencies. The Dollar Index (DXY) broke through the 109.50 mark, indicating a robust start for the king dollar. Meanwhile, US equities are showing a disappointing performance, particularly highlighted by a lackluster Santa Rally, which failed to deliver the usual year-end lift that investors hope for.

In the realm of fund flows, there has been a dramatic drop in global equity fund inflows, which fell by 86% compared to the previous week. Data from LSEG Lipper revealed that investors added just $4.93 billion to global equity funds, a stark contrast to the net $35.1 billion seen the prior week. This decline can be attributed to rising bond yields, with the US 10Y yield hitting 4.64%, the highest figure since earlier in May. Some analysts suggest that this reduction could also stem from portfolio rebalancing as investors assess their positions going into the new year.

Looking ahead, the coming week is set to be crucial as attention shifts to the US Non-Farm Payroll (NFP) report, which is anticipated to provide deeper insights into employment trends and potentially affect the dollar's ongoing dominance. Predictions suggest a rise in December's non-farm payrolls by around 153,000, although estimates vary between 125,000 to 200,000. This data will be pivotal for understanding both labor market behaviors and future monetary policy adjustments.

In addition to the US jobs data, economic indicators from Australia will also come into play. The country is set to release information on its Consumer Price Index (CPI), retail sales, and trade balance. These statistics will shed light on Australia's economic well-being, especially considering the fluctuations it faced in 2024, largely linked to its status as a commodity currency and ongoing concerns with China, its largest trading partner.

Overview of Recent Market Activity: King Dollar Defends Its Reign

The festive season did not lend support to US equities, as indicated by five consecutive days of losses in the S&P 500 index starting December 26. However, historical patterns suggest that January could bring a turnaround, at least within the first half of the month, as many stock indices have shown resilience during this period.

Gold prices have edged upwards this week but remain within a confined range. Various narratives, including proposed tariffs from Donald Trump aimed at bolstering the US Dollar, have created a complex environment for gold investors. With ongoing uncertainty in the global economy, coupled with heightened geopolitical tensions, there continues to be a demand for safe-haven assets like gold.

On the commodities front, Brent crude oil prices enjoyed a positive week, advancing around 4% as US stockpiles have been on the decline after several weeks of stability. Despite this increase, the broader outlook for 2025 remains somber, with analysts projecting Brent prices to hover around $70 per barrel following a challenging 2024.

Upcoming Week: NFP Report and Its Implications for the USD

Market Developments in Asia Pacific

The week ahead will lack significant data releases in the Asia Pacific region. However, attention will turn to China with the upcoming Caixin Service PMI report. Recent events surrounding the Yuan's performance and borrowing rates reflect concerns reminiscent of Japan's economic situation in the 1990s. With deflationary fears on the rise, the Yuan has reached new lows against the US Dollar. Despite these challenges, recent manufacturing data showed slight improvement, presenting a mixed picture.

Focus on the US and Europe

As the week progresses, the spotlight will be on the US as the NFP report nears release. The labor data is expected to influence USD strength, especially following the dollar's significant rise in January. The unemployment rate is predicted to remain steady at 4.2%, while wage growth is expected to match a year-over-year increase of 4%. This anticipation aligns with an overall slowdown in the employment sector.

In Europe, attention will shift to inflation data as the Euro struggles against the dollar. There are increasing talks about the potential for EUR/USD parity if inflation decreases, which could prompt the European Central Bank (ECB) to reconsider its monetary policy amidst stagnant growth.

Technical Perspective: Chart of the Week

Focusing on the US Dollar index (DXY), it has experienced a breakout as of January 2, starting the year off strong. The current resistance level to watch is around 109.50, marking a two-year high. However, the close of Friday's trading could indicate a potential pullback, as the daily candle appears bearish. Should a correction occur, support levels to consider include 108.50, 108.00, and 107.50, while any moves higher would have to clear the previous week's highs at 109.53 to confirm a continued uptrend.

US Dollar Index (DXY) Daily Chart Overview

Source: TradingView.com

Key Support and Resistance Levels:

Support Levels

• 108.50
• 108.01
• 107.50

Resistance Levels

• 109.52
• 110.00
• 110.50

Dollar, Inflation, Reports