US Dollar Index meets offers following a mixed NFP report

The US dollar, as measured vs. a basket of major currencies in the DXY index, fluttered on the release of the US Labor Department's closely watched Nonfarm Payrolls employment report. While the data showed an increase of 315,000 jobs last month after surging 526,000 in July, the disappointments came in the form of Average Hourly Earnings which rose 0.3% compared with expectations of 0.4% and the Unemployment Rate which missed expectations of 3.5% vs. 3.7% actual. However, the stronger-than-expected Participation Rate could go some way toward explaining this miss given the increase in the number of people joining the labour force last month. 

• Labour Force Participation Rate July: 62.4% vs. estimated 62.2%; previous 62.1%.

Despite mixed data, traders see a 75% chance of a third straight 75 basis points rate hike in September and expect rates to peak at 3.90% in March 2023. The US dollar has since recovered from the knee-jerk sell-off and lows of the day down at 109.049 and is trying to hang on to the correction in the 109.20s at the time of writing. It had recovered to 109.46, so it remains slightly pressured still. US yields are under pressure as well, with the 2-year US Treasury yield down over 2.57% at the lows of 3.406%

The US dollar index had rallied to a fresh 20-year high on Thursday of 109.99, bolstered by robust US data, which leaves the DXY on track for a 0.5% weekly gain still on a closing basis. However, given that the data has a little something for everyone, it eases some pressure on the Federal Reserve looking to cool down labour demand and the overall economy to bring inflation back to its 2% target, which is a factor that can weigh on the greenback for the forthcoming days as markets continue to digest the implications. Traders will now look to the August Consumer Price Index report due in the middle of this month for clues on the next rate increase ahead of when the Fed meets.

DXY H1 chart

From a technical standpoint, the index is trying to establish around a 61.8% Fibonacci retracement level of the prior hourly bullish impulse. If the bulls commit, then there will be prospects of a bullish extension for the day ahead and open next week with sights beyond the 110.00 level. On the other hand, should the support area give way, a deeper correction of the weekly bullish run could be on the cards for next week:

The W-formation on the weekly chart is a reversion pattern and there are prospects of a correction into the prior highs that meet with the 38.2% Fibo retracement.