Fundamental Outlook for US Dollar: Neutral

- US Dollar mixed ahead of holiday weekend
- US Nonfarm Payrolls shows unemployment rate drops, why did the US Dollar fall?
- View our six-month US Dollar forecast

The US Dollar finished the week considerably lower against the Euro and other key counterparts, falling on noteworthy disappointments in key economic data and a general market shift towards dollar selling. A truly dismal Pending Home Sales report showed that purchases plummeted a further 30 percent in the month of May after losing a likewise significant 14.2 percent in April. Combined with a smaller disappointment in ISM Manufacturing figures and mostly lackluster US Nonfarm Payrolls data, the results were enough to leave the US S&P 500 near fresh year-to-date lows through Friday’s close.

The safe haven US Dollar did not gain on the significant deterioration in financial market risk sentiment, however; it seems that markets were just as willing to punish the USD for dismal domestic economic data as they were equities. The surprising disconnect could possibly signal a much more substantial shift for the US Dollar itself. Though one week hardly makes a trend, the breakdown in correlation could mean further Greenback losses amidst stock market declines.

Attention now shifts to the coming week of price action, but the holiday-shortened week is virtually devoid of significant US economic data. The significant exception is the ISM Non-Manufacturing (Services) report due Tuesday, which is expected to show a very marginal slowdown in growth for the domestic services sector. Said field accounts for approximately 80 percent of the US economy, and large surprises have often forced large moves in financial market. Recent price action suggests that the US Dollar stands to lose further if the ISM Non-Manufacturing data does not meet market expectations, and traders should be on the lookout for anything notably above/below forecast.

The US Dollar finds itself at somewhat of an impasse. On the one hand, the recent downturn in equity markets should boost the safe-haven Greenback against the euro and other key counterparts. On the other, markets seem all too willing to sell US Dollars at any sign of trouble for the domestic economy. The holiday-shortened week of trade promises relatively little in the way of foreseeable event risk, but elevated forex market volatility expectations warns of eventful price action out of key pairs. It remains critical to watch whether the US Dollar reasserts its safe haven status and reacts to noteworthy deterioration in financial market risk sentiment. Given bearish S&P 500 momentum, a re-establishment of said link would likely force the US Dollar to recover against the Euro after noteworthy pullbacks.

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