US Dollar Index approaches 96.50 ahead of Powell

  • The index moves higher following upbeat US Payrolls.
  • The US economy created more than 300K jobs last months.
  • Wage inflation surprised to the upside. U-rate ticked higher.

The US Dollar Index (DXY), which tracks the buck vs. a basket of its main competitors, has rebounded sharply to the 96.50 region following better-than-expected results from the monthly report on the US labour market.

US Dollar Index now looks to Powell

After testing lows near the 96.00 mark earlier in the session, the index found the perfect excuse for a sudden move higher in the auspicious figures from December’s US Non-farm Payrolls.

In fact, the US economy added 312K jobs during the last month of 2018, exceeding previous estimates. In addition, Average Hourly Earnings – a proxy for inflation pressure via wages – also expanded above forecast at a monthly 0.4% and 3.2% from a year earlier. On the not-so-bright side, the jobless rate move higher to 3.9% from 3.7%.

Later in the session, investors will closely follow Chief Jerome Powell’s speech, with the Fed’s rate path and prospects of the US economic growth (including the likeliness of a recession in 2020?) on top of the agenda.

What to look for around USD

The solid prints from December’s Payrolls not only show that the labour market remains robust, but also poured some cold water over speculations that the Federal Reserve could re-assess its forecast of two rate hikes this year. In addition, and as long as the situation around the US partial shutdown remains unresolved, market sentiment could suffer and extend the pessimism to the buck, somewhat limiting the near-term upside potential.

US Dollar Index relevant levels

As of writing the index gains 0.23% at 96.50 facing the next resistance at 96.75 (21-day SMA) followed by 96.95 (high Jan.2) and then 97.54 (high Nov.28 2018). On the flip side, a break below 95.99 (100-day SMA) would open the door to 95.82 (low Jan.2) and finally 95.65 (low Jan.1).

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