The DXY bulls extend their rally ahead of NFP. Positive data can surge the DXY to a 12-week high.
- DXY experiencing a price hike ahead of NFP
- Fed’s monetary policy can have an impact on the DXY’s current bullish run
- Delta variant of Covid-19 may stop the greenback bulls
DXY fundamental forecast: data front and Delta virus impact
The DXY Index rose 0.2 percent on balance to 92.50, marking its highest close since early April. The previous session’s surge extended as markets focused on the event risk provided by the imminent announcement of monthly nonfarm payrolls.
The greenback index vs. the six significant currencies reclaimed a multi-day high the previous day, owing to increased speculation about the Fed’s behavior and mainly vital US data.
The US ISM Manufacturing PMI came in at 60.6 in June, down from 61.00 predicted and 61.2 in May. This adds to the information of the employment component, which fell to 49.9. But the prices-paid sub-component increased to the most significant level since 1979. In contrast, initial claims for the last week of June declined to 364K, bringing the four-week average down to 392.75K. This may wake the bears.
The NFP report, which is frequently high-impact, carries weight primarily to influence monetary policy at the Federal Reserve. This is especially true given the current market environment, which is dominated by speculation about Fed tapering.
While recent inflation has received a lot of attention, FOMC officials will also analyze labor market circumstances, possibly with a higher emphasis on the central bank’s pursuit of making significant further progress toward policy goals.
Nonetheless, Fed Chair Powell anticipates strong labor demand to raise wages and reduce unemployment.
So worse-than-expected nonfarm payrolls data will almost certainly trigger a dramatic unwinding of recent US dollar strength and Fed taper bets. This could happen if the unemployment rate does not improve.
Better-than-expected NFP results have the potential to increase purchasing pressure on the US dollar. In addition, the NFP report’s unemployment rate, labor force participation rate, and wage growth components will almost certainly be analyzed for signs of improvement as well.
In which NFPs do not dramatically miss or exceed expectations, the goldilocks scenario may be perceived as a disappointment by US Dollar bulls and Fed hawks. As a result, USD price movement may be uneven and choppy, with a little bearish bias. This indicates that a ‘good but not good enough’ print on nonfarm payrolls gives the Federal Reserve more time to be patient in unwinding asset purchases and tightening financial conditions.
Fear of Delta
With all of the hype surrounding NFP, it should be highlighted that the market’s concerns about global economic recovery as a result of the Covid Delta variant can slow the bulls.
DXY technical forecast: key levels in action
The DXY is edging closer to its high of April 2021. You can see on the 4-hour chart below, there’s an upward momentum with the RSI above the 70-level, just outside its overbought zone. This indicates a possible upward move.
The DXY is testing its resistance between 92.60 and 92.80. As a result, there is a possibility that bulls may look to cross these levels. On the other hand, any break below the 90.5 support level can trigger a downward move.