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USD Index wobbles around 103.50 despite solid NFP

  • The index maintains the vacillating trade around 103.50.
  • Further improvement in the risk space weighs on the buck.
  • May Nonfarm Payrolls have hammered expectations at 339K.

The USD Index (DXY), which measures the greenback vs. a basket of its main competitors, alternates gains with losses in the mid-103.00s, as investors continue to assess the results from the US jobs report.

USD Index remains apathetic post-Payrolls

Following an ephemeral bout of strength soon after US Nonfarm Payrolls surprised to the upside in May, the index slowly returned to its current comfort zone around the 103.50 zone at the end of the week.

In fact, the greenback briefly revisited the 103.70/75 band, or daily highs, after the US economy created 339K jobs in May and the jobless rate rose to 3.7%. Further results saw Average Hourly Earnings rise 0.3% MoM and 4.3% from a year earlier, while the Participation Rate remained unchanged at 62.6%.

In the meantime, Thursday’s vote to pass the US debt ceiling bill in the US Senate continues to underpin the better tone in the risk complex and therefore keeps the dollar price action depressed, all in combination with the now-firm consensus around a Fed’s pause at the June gathering.

What to look for around USD

The index keeps the trade around the 103.50 zone amidst a vacillating price action on Friday.

In the meantime, bets of another 25 bps at the Fed’s next gathering in June suddenly reversed course in spite of the steady resilience of key US fundamentals (employment and prices, mainly), denting the recent rally in the dollar and favouring a further decline in US yields.

Bolstering a pause by the Fed instead appears to be the extra tightening of credit conditions in response to uncertainty surrounding the US banking sector.

Key events in the US this week: Nonfarm Payrolls, Unemployment Rate (Friday).

Eminent issues on the back boiler: Persistent debate over a soft/hard landing of the US economy. Terminal Interest rate near the peak vs. speculation of rate cuts in late 2023/early 2024. Fed’s pivot. Geopolitical effervescence vs. Russia and China. US-China trade conflict.

USD Index relevant levels

Now, the index is losing 0.04% at 103.52 and faces the next support at the 100-day SMA at 102.91 followed by the 55-day SMA at 102.41 and finally 101.01 (weekly low April 26). On the upside, the breakout of 104.69 (monthly high May 31) would open the door to 105.58 (200-day SMA) and then 105.88 (2023 high March 8).

Author

Pablo Piovano

Born and bred in Argentina, Pablo has been carrying on with his passion for FX markets and trading since his first college years.

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