The Dollar is losing its balance

SP500

Key zone: 7,600 - 7,700

Buy: 7,750 (on strong positive fundamentals); target 7,900; StopLoss 7,700

Sell: 7,550 (on a decisive break above 7,600); target 7,400-7,350; StopLoss 7,600

Weak ADP data hit the main argument of dollar buyers — the resilience of the labor market. But selling USD based on this data alone is dangerous: oil around $95–97, geopolitical risk, and high Treasury yields create contradictory but, for now, effective support for the dollar.

The U.S. labor market continues to lose momentum.

A reminder:

In August, the private sector created just 38,000 jobs — the smallest increase since January and below the market expectation of around 47,000. The July result was also revised: from 44,000 to 46,000.

The market reaction was logical: the 10-year Treasury yield declined from a nearly three-year high of 4.818% to around 4.774%, while DXY lost about 0.4%, falling to 99.17. At the same time, the market-implied probability of a Fed rate hike in September declined to around 59%, from nearly 70% a day earlier.

But this is where September’s main contradiction begins. Weak employment pushes the Fed toward easing, while oil pushes inflation higher.

ADP is showing more than just a weak headline. The structure of the August report looks considerably worse than the +38,000 figure itself.

• Manufacturing cut 17,000 jobs;
• Professional and business services lost 16,000;
• Information sector — 4,000;
• The entire goods-producing sector contracted by 10,000;
• Most of the increase came from large companies — 34,000 jobs

This is an important signal: the problem is no longer limited to individual sectors. Hiring is becoming more cautious, while the private sector is losing its ability to generate broad-based employment growth.

At the same time, wage dynamics are also cooling. Base pay increased by 3.2% y/y, by 3.0% for workers who stayed in their jobs, and by 4.7% for those who changed employers. ADP indicates that the pace of wage growth has been slowing for four years.

For the Fed, this is an argument in favor of a more dovish policy, but only as long as inflation does not return through energy prices.

Oil Is Breaking the Simple “Bad Data = Weak Dollar” Relationship

The classic chain looks like this:

weak employment → lower probability of a rate hike → lower yields → weaker USD.

A different structure is working now:

• Weak employment → pressure on the Fed;
• Expensive oil → inflationary pressure;
• Inflation + geopolitical risk → high yields and demand for safe-haven assets;
• High yields → support for USD.

Therefore, deterioration in the labor market no longer guarantees a decline in the dollar. If oil continues to move higher, the Fed will find itself trapped: the economy is cooling, but the inflationary shock prevents a rapid shift toward dovish policy.

What Should a Trader Do?

• USD: do not sell the dollar mechanically on weak ADP. The main Short signal will appear only if weak NFP is accompanied by a decline in short-term Treasury yields.
• DXY: the 99 zone is becoming the key test. Holding above it preserves the possibility of a recovery toward 100. A break below 99 while the 2Y yield is falling strengthens the bearish scenario.
• USD/JPY: high volatility persists. Weak U.S. data simultaneously reduce U.S. yields and strengthen expectations of tighter BOJ policy, creating additional pressure on USD/JPY. On September 3, the dollar had already fallen by more than 1% against the yen, approaching 156.3.
• Gold: weak NFP + falling yields is a bullish combination. But if oil prices and inflation expectations remain high, the market may initially trade rising real rates, so it is better to confirm an entry with Treasury dynamics.
• Oil: as long as the geopolitical premium remains, Brent continues to be the main source of inflation risk. A return above $97–100 sharply increases the probability that the market will once again begin pricing in a more hawkish Fed response.

So, What Does This Mean?

The U.S. labor market is indeed losing momentum. The employment structure also shows deterioration in manufacturing, professional services, and the information sector. But drawing the direct conclusion that “weak labor market = dollar collapse” is premature right now.

The key sequence to watch is NFP → 2Y Treasuries → 10Y → DXY → oil.

If weak NFP pushes short-term yields lower, Short USD gets fundamental confirmation.

But if oil holds around $95+ and long-term Treasury yields remain high, the dollar may survive even a very weak labor market.

So we act wisely and avoid unnecessary risks.

Profits to y’all!