The US dollar trades sideways awaiting weekly unemployment benefit applications

• The US dollar is trading sideways, after Wednesday's session in which the Fed decided to maintain interest rates.
• The Fed was less hawkish than expected.
• The US Dollar Index remains above 105.50 despite several attempts by the bears.

The US dollar (USD) enters calm waters on Thursday after Wednesday's rollercoaster following the Federal Reserve's (Fed) monetary policy decision. Wednesday's big batch of economic data along with the Fed's monetary policy meeting and Chairman Jerome Powell's speech was the dream scenario for a rally in the US Dollar Index (DXY), but this scenario did not materialize and the index fell to 105.43, near this week's low. Although it briefly looked like the US Dollar might weaken further, it is still holding firm and is likely to remain so until Friday's Non-Farm Payrolls data is released as the next catalyst.

As for the economic data, some snacks before the Non-Farm Payrolls and employment report on Friday. Traders can feast on the weekly jobless claims numbers and the Challenger job cuts figure to look for clues about whether the layoffs announced during the recent earnings season are starting to weigh on the labor market. April's Challenger job cuts were less severe than those of the previous month, with only 64,789 layoffs recorded.

Daily summary of market movements: It's not all bad

• A substantial move on the USD/JPY and EUR/JPY charts on Wednesday, pointing to possible intervention again from the Bank of Japan (BoJ) or the Ministry of Finance, although no official confirmations were issued.
• This Thursday, at 11:30 GMT, the April Challenger job cuts report will be published. The previous figure was 90,309 and that of April stood at 64,789.
• Most of Thursday's data will be released at 12:30 GMT:
  • Initial weekly jobless claims are expected to be 212,000, up from 207,000 previously.
  • Continuation claims stood at 1,781 million last week, with no forecast available.
  • In the United States, the trade balance for March will be published:
  • The goods trade deficit previously stood at $91.8 billion.
  • The trade balance in goods and services is expected to go from a deficit of $68.9 billion to a deficit of $69.1 billion.
  • Non-farm productivity growth for the first quarter of 2024 should slow from 3.2% to 0.8%.
  • Unit labor costs are expected to accelerate substantially, from 0.4% to 3.2%.
• Around 14:00 GMT, March monthly factory orders are expected to rise 1.6%, up from the 1.4% gain recorded a month earlier.
• Stocks are trading mixed on Thursday morning, with European stocks slightly in the red, while US futures are slightly in the green.
• CME's Fedwatch tool suggests a 91.1% probability of remaining unchanged in the Federal Reserve's federal funds rate in June. The chances of a rate cut in July are also ruled out, while for September the tool shows a 56% chance of rates falling below current levels.
• The 10-year US Treasury bond yield is trading around 4.59% and remains at this level.

US Dollar Index Technical Analysis: Consolidation

The US Dollar Index (DXY) underwent a rollercoaster ride on Wednesday as European markets remained closed for Labor Day. Despite the moves and selling pressure on the DXY, the 105.50 floor holds despite three failed breakouts in the last two weeks. Dollar bulls are clearly buying at these levels as support is still there. This could lead to a breakout soon, with either the bulls pulling away and letting the DXY fall or the sellers giving in, causing the DXY to spike higher.

To the upside, 105.88 (a pivotal level since March 2023) must rally again with a daily close above it, before targeting the April 16 high at 106.52 for the third time. Further up and above the round level of 107.00, the DXY index could find resistance at 107.35, the October 3 high.

On the downside, 105.12 and 104.60 should provide support ahead of the 55-day and 200-day SMA at 104.40 and 104.10, respectively. If these levels do not hold, the 100-day SMA near 103.75 is the next best candidate.

The dollar retreated from Tuesday's advance amid falling US yields across the curve, all after the Fed left its interest rates unchanged, as expected, and Chairman Powell ruled out a raising interest rates as the Fed's next move.