The strong US dollar narrative strives on towards US NFP

• US dollar has climbed to print a fresh cycle high.
• All eyes will be on the US NFP on Friday.
• Technically, there is the case for an interim correction in the DXY and EUR/USD. 

The dollar gained on Wednesday and made a fresh cycle high in the New York session. 

At the time of writing, DXY, an index that measures a basket of currencies vs the greenback, is trading 0.4% higher on the day at the highs of 92.445 after a progressive bid from 92.001 the low. 

The US dollar is on the verge of its biggest monthly rise since November 2016 with just a couple of hours to go until the close for June. 

A surprisingly hawkish shift in the Federal Reserve's rates outlook was the major catalyst. Recent concerns at the start of this week over the spread of the Delta coronavirus variant have boosted the currency even higher. 

The US dollar has gained over 2.5% by the same measure as markets reassess the US outlook.

Investors are anticipating that data flows will continue to show a strong economy as we move into H2 which stands in contrast to many other parts of the world.

 Lagging vaccine roll-outs, especially in nations where the delta variant is quickly spreading, has forced some to go back into lockdown and the greenback is picking up a haven bid as a consequence. 

Meanwhile, all eyes are on the jobs report Friday following today's ADP report that increased solidly in June. 

Private payrolls increased by 692,000 jobs last month, the ADP National Employment Report showed.

Additionally, data for May was revised lower to show 886,000 jobs added instead of the initially reported 978,000. Economists polled by Reuters had forecast private payrolls would increase by 600,000 jobs.

Wage inflation in focus

Concerning this week's NFP, whereby payrolls probably surged again in June, with the pace up from the +559k in May, (markets expecting 700k+, Unemployment Rate 5.6%), analysts at Brown Brothers Harriman argued that the softer jobs numbers seen in recent months are due more to supply than demand.

''In which case, wages will have to adjust higher. Perhaps this is behind the expected jump in average hourly earnings to 3.6% YoY vs. 2.0% in May. Wage inflation is always the key to broad-based price inflation and such acceleration would get the market’s attention.''

DXY technical analysis

Meanwhile, there are prospects of a correction in both the euro and the US dollar. 

As per the prior analysis, EUR/USD Price Analysis: Bears need to consider the daily M-formation, the 24th June lows at 1.1917 could be targetted by the bulls in a significant upside correction. 

The price has moved in on the 18 and 21 June lows in the 1.8140s. 

While there is a high probability that the price will continue to fall considering the bearish trend, the M-formation is a chart pattern that has a high completion rate.

There is an equal probability that we will see a correction from the current lows and support structure to test the prior support within the formation as follows. 1.1920's come as the upside target:

Considering the 57.6% weighting of the DXY to the euro, it should be no surprise that we see the same chart formation there in reverse (W-formation). 91.80s comes as the downside target:

In both cases, the 38.2% Fibonacci retracements and the confluence of prior highs and lows come as the first anticipated target prior to the 61.8% Fibonaccis and neckline of the formations.