Forex@all

Despite an early morning rally, the US dollar eventually pulled back on a combination of building risk appetite and dour US economic data.

As we said yesterday though, the US dollar remains within the range it has held to since the start of November, and for what it’s worth, day-to-day moves signal little more than consolidation. While it is possible that we will see a sharp correction lower in the near-term, the long-term trend remains very much in favor of US dollar strength.

Focusing on the data on hand, the ISM non-manufacturing index fell to a record low of 37.3 in November from 44.4, signaling the sharpest contraction in the services sector since record-keeping began in 1997. Nearly every other component hit their worst levels ever as well, including business activity, employment, prices paid, new orders, and new export orders. This is bearish for the US economy in many ways, as it suggests Q4 GDP could contract following the 0.5 percent drop in Q3, and also indicates that the release of Friday’s US non-farm payrolls and unemployment rate could be deeply disappointing. In fact, NFPs are already forecasted to fall by 330k, surpassing the 2001 low of -325k. Watch for our NFP outlook on Thursday for more on this topic and how the US dollar may respond.