Struggling US dollar looks ahead to jobs data and Fed decision

After a dismal month of May for the US dollar, could key events in June help engineer a turnaround for the struggling currency? The most immediate event on the near horizon will be the US jobs report on Friday. A good showing for May job creation, which seems somewhat likely given the stellar ADP private employment report released on Thursday, could lead to an initial dollar bounce. Around 180,000 US non-farm jobs are currently expected to have been added in May.

Even more critical for the US dollar, however, will be the Federal Reserve’s interest rate and policy decision less than two weeks from now, in mid-June. Positive jobs data on Friday would help support a Fed decision to raise rates on June 14th. Futures markets are currently pricing-in over a 90% likelihood of a 25-basis-point rate hike then. If this hike becomes increasingly likely in the next couple of weeks, a more pronounced rebound for the dollar might be expected.

As it currently stands on Thursday, the US dollar index has just bounced once again off a key short-term support area around the 96.80 price level. Since the beginning of the year, the US dollar has generally been sliding against a basket of other major currencies. In mid-May, this slide resulted in a technical breakdown below both the key 98.50 support level as well as a major uptrend support line that extends back one year to the low of May 2016. Since that breakdown more than two weeks ago, the dollar index has fallen further to settle just above the noted 96.80 support area.

If the index is able to hold this level after Friday’s non-farm payrolls report, it should signify the market’s assessment that the probability of a June Fed rate hike has either remained stable or potentially even increased. Any breakdown below support, however, should indicate lower confidence in an impending rate hike due in part to lackluster jobs data. Multiple recent bounces off the current support area have made it the key level to watch for further dollar direction in the near-term. If the level is able to hold, it would bode well for at least a relief bounce for the dollar, which could provide a short-term boost to the index back up towards the noted 98.50 level, now as resistance. Any breakdown below the current support on weak jobs data, however, could potentially pressure the index to establish new year-to-date lows towards the 96.00 and 95.00 support levels.

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