US Dollar slightly higher after Thursday's drop on jobless claims

The US Dollar (USD) stays resilient against its major rivals early Friday but the currency's gains limited for now. The US Dollar Index, which gauges the USD's valuation against a basket of six major currencies, clings to modest daily gains near 103.50 but remains on track to end the second week in negative territory.

In the week ending June 3, there were 261,000 initial claims for unemployment benefits in the United States (US), an increase of 28,000 from the previous week's 233,000, the US Department of Labor reported on Thursday. This reading surpassed the market expectation of 235,000 by a wide margin and caused the USD to suffer large losses against its main competitors.

Daily digest market movers: US Dollar marginally higher on Friday

• The CME Group FedWatch Tool shows that markets are currently pricing in a nearly 76% probability of the Fed leaving its policy rate unchanged after the June policy meeting. 
• Following Wednesday's sharp upsurge, the benchmark 10-year US Treasury bond yield reversed its direction and lost more than 2% on Thursday.  
• Binance.US, the American arm of Binance.com, said Thursday that it will suspend US Dollar (USD) deposits, noting that its banking partners would do the same for withdrawals from June 13.
• The Bank of Canada unexpectedly raised its policy rate by 25 basis points to 4.75% on Wednesday due to increasing concerns over the Consumer Price Index (CPI) inflation getting stuck materially above the 2% target. The benchmark 10-year US Treasury bond yield climbed above 3.8% following this development.
• The Nasdaq Composite Index is up more than 1% after the opening bell and the S&P 500 Index gains nearly 0.4%. The positive shift witnessed in risk mood further weighs on the USD.
• In its latest outlook published on Wednesday, the OECD said that it sees the Fed funds rate peaking at 5.25%-5.5% from Q2 2023, followed by two "modest" cuts in the second half of 2024.
• The United States the goods and services deficit stood at $74.6 billion in April, the US Census Bureau reported on Wednesday. Exports declined $9.2 billion to $249 billion, while imports rose $4.8 billion to $323.6 billion.
• The monthly data published by the ISM showed on Monday that the business activity in the US service sector continued to expand in May, albeit at a softer pace than it did in April. The ISM Services PMI declined to 50.3 in May from 51.9 in April and missed the market expectation of 51.5.  
• Further details of the ISM PMI report revealed that the Prices Paid Index edged lower to 56.2 from 59.6 and the Employment Index dropped to 49.2 from 50.8.
• Commenting on the data, "there has been a pullback in the rate of growth for the services sector," noted Anthony Nieves, Chair of the Institute for Supply Management (ISM) Services Business Survey Committee. "This is due mostly to the decrease in employment and continued improvements in delivery times (resulting in a decrease in the Supplier Deliveries Index) and capacity, which are in many ways a product of sluggish demand."
• The US Census Bureau announced on Monday that Factory Orders rose 0.4% in April following the 0.9% increase recorded in March.  

Technical analysis: US Dollar Index stays below important technical level

The US Dollar Index (DXY) technical picture fails to provide a directional clue with the Relative Strength Index (RSI) indicator on the daily chart holding steady near 50. However, DXY stays below the 20-day Simple Moving Average, currently located at 103.70, after closing below that level for the first time since mid-May.  

In case the index manages to reclaim 103.70, it could face immediate resistance at 104.00 (Fibonacci 23.6% retracement of the November-February downtrend) ahead of 104.50 (static level) and 105.00 (psychological level). 

On the downside, bearish pressure could increase if DXY closes the week below 103.70. In that scenario, 103.00 (100-day SMA) could be seen as the next bearish target before 102.70 (static level).

What is US Dollar Index (DXY)?

The US Dollar Index, also known as DXY or USDX, is a benchmark index that was established by the US Federal Reserve in 1973. DXY is widely used as a tool measuring the US Dollar (USD) value in global markets. The index is calculated by measuring the US Dollar’s performance against a basket of six foreign currencies, the Euro, the Japanese Yen (JPY), Swedish Krona (SEK), the British Pound (GBP), the Swiss Franc (CHF) and the Canadian Dollar (CAD).

With 57.6%, the Euro has the biggest weight in the index followed by the JPY (13.6%), GBP (11.9%), CAD (9.1%), SEK (4.2%), and CHF (3.6%). Hence, a sharp decline in the EUR/USD pair could help the US Dollar Index rise even if the US Dollar weakens against some of the other currencies in the basket.