US Economic Data Takes Center Stage as Dollar Sentiment Shifts Away from Geopolitical Risks

Traders are rapidly rotating out of headline-driven positioning, with Venezuelan-linked volatility largely digested and commodities, equity markets, and currency pairs snapping back toward their pre-January 4 baseline. The refocus on hard economic indicators suggests the short-term USD narrative may hinge more on labor market surprises than external shocks, ING’s FX strategy team suggests.

Seasonal Dollar Strength Masks Underlying Data Uncertainty

“The Venezuelan episode has substantially unwound across all asset classes. Oil retreated but remains in proximity to its opening-week range, equity indices have sustained momentum, and currency traders have abandoned the geopolitical trade,” Francesco Pesole, ING’s lead FX analyst, observed. “Dollar strength yesterday was more likely driven by typical year-start portfolio rebalancing flows and modest movements in USD swap curve positioning rather than any geopolitical escalation.”

The analyst added that unless Washington pursues additional confrontational policy moves, near-term price discovery should gravitate toward macroeconomic releases. “ISM services data today carries expectations for moderation, but the real movers will probably be ADP employment figures and JOLTS job openings. Bearing 6200 in recent JOLTS prints, there’s persistent slack in demand for labor—a factor that historically pressures USD upside.”

Asymmetrical Downside Risks for Greenback Embedded in Jobs Data

A striking pattern has emerged in recent ADP releases: consensus expectations have been undershooting the actual data in roughly 70% of recent prints, yet misses have become more frequent. Given ING’s broader bearish positioning on US employment momentum, the team views upcoming jobs metrics as skewed toward disappointing the dollar market.

“Our base case remains neutral-to-modestly-constructive for USD in the immediate term. However, asymmetrical risks are clearly tilted to the downside if labor data rolls in softer than expected. That scenario would reinforce market expectations for continued Fed accommodation, pressuring the currency lower,” Pesole concluded. Market participants are bracing for potential volatility swings as the week’s economic calendar unfolds, with employment metrics likely to dominate directional flow.