- The index loses more ground and approaches 111.50.
- Selling pressure gains strength after strong NFP numbers.
- US yields lose momentum and pull back from highs.
The US Dollar Index (DXY)which tracks the dollar against a basket of its major currencies, pulls back sharply and falls well below 112.00 by the end of the week.
Dollar index weakens despite payrolls
The index sheds two consecutive daily pullbacks and breaks decisively below key support at 112.00, thanks to renewed intense appetite for risk space on Friday.
In fact, strong US non-farm payroll data failed to prompt a dollar reversal even though the labor market remains tight. This scenario supports the continuation of the Fed’s normalization process through additional increases in interest rates in the coming months.
Going back to the calendar, the US economy added 261,000 jobs last month, although the unemployment rate rose to 3.7% (from 3.5%) and Average Hourly Earnings beat estimates after growing 0.4% from the previous month. .
What to watch out for around the dollar
The outbreak of the selling bias in the dollar drags the index well south of the 112.00 level at the end of the week.
Meanwhile, the Fed’s firm conviction to continue raising rates until inflation appears well under control, despite a likely slowdown in economic activity and some loss of momentum in the labor market, continues to underpin the underlying positive tone. in the dollar.
From a more macro perspective, the dollar also seems bolstered by the Fed’s divergence from most of its G10 peers, combined with bouts of geopolitical turmoil and the occasional resurgence of risk aversion.
Relevant USD Index Levels
The index is now down 1.20% at 111.62 and a break of 109.53 (monthly low Oct 27) would open the door to 109.35 (weekly low Sep 20) and finally 107.68 (monthly low Sep 13) . On the other hand, there is initial resistance at 113.88 (13th Oct monthly high), followed by 114.76 (28th Sep) and then 115.32 (May 2002 high).
Source: Fx Street
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