On Friday, February 4, DXY was up by 0.01% at the start of the European session. However, the index is trading in red for the sixth day and waiting for today’s NFP for further direction.
- DXY bears look in control as the index wait for today’s all-important NFP.
- A positive NFP report would be enough to jog investors’ memories of the Fed’s hawkish approach.
- Investors are looking at both ends to find a direction.
DXY fundamental forecast
The dollar index fell sharply on Thursday, reaching a more than two-week low as central banks try to catch up with the Federal Reserve. Now the index is trying to find some direction above the 95.30 level.
Eyes on NFP
Today’s Nonfarm Payroll is the spotlight. Payrolls most certainly fell in January, but solely due to the transitory Omicron fallout caused by many individuals calling in sickness early last month. This is something that should be represented in the data.
The Federal Reserve is likely to assess any near-term labor market weakness before raising interest rates in March, regardless of tomorrow’s employment report outcome.
On the one hand, a minor rise in work opportunities, while hiring interruption caused by the newest wave of Omicron variant Covid-19 infections may result in a reduction.
A poor result might even boost equities if it appeared severe enough to postpone policy tightening. Still, many experts believe the wheels are already in motion for higher rates worldwide.
This year, the ECB’s Christine Lagarde left the door open to rate rises, while the Bank of England hiked rates on Thursday, with almost half of its officials wanting a greater increase.
Still, there’s hope for a pleasant surprise. Any favorable statistic would almost certainly elicit it could have been worse sentiment, enhancing the dollar’s value.
Moreover, it would act as a reminder that the US economy is still near full employment, which is a reminder that the Fed is set to hike interest rates in March.
Even if the NFP is below expectations, the dollar may gain momentum. For starters, the dollar is a safe-haven currency that may be used in times of crisis.
And, if the headline is close to zero, wage growth may steal the show. Many of the positions lost, however temporarily, to Omicron are low-wage jobs.
Key data releases from the US
On the calendar front, today we have the non-farm unemployment change.
With the market already putting in the Fed’s first aggressive step and the USD long a consensus view, we anticipate a period of stabilization in the short term before the USD regains its ground.
DXY technical analysis: key levels in action
During the early European session, DXY is looking to stay above the 95.30-mark. So, the index has risen -0.02%. The index is now trading above the 95.33 level.
The index is slightly above its 100-day MA on the daily chart, and the MACD is neutral.
A break above 95.67 would open the door to 95.85. If it can cross that level, we’ll see the index touching 96.00.
On the flip side, the next support for the index lies around 95.26. If the index slips below this level, we can see a downward movement towards the 95.14 level.