Dollar Index arrives at major level ahead of NFP

As trading unwinds after an unexciting day, the focus is slowly turning to Friday’s US monthly non-farm payrolls report. My colleague James Chen’s NFP preview can be found in THIS article, which contains all the information you need. The long and short of it is that a headline reading of 200,000 jobs created is expected to be seen, with an unchanged rate of unemployment of 5.0% and another 0.3% increase in monthly average hourly earnings. If correct, this would actually be a rather bullish employment report and would most likely increase the odds of a 2016 rate rise, leading to further gains for the dollar. But if the recent trend of weaker US data continues, then expect to see the buck come under renewed selling pressure.

Ahead of Friday’s monthly jobs report, the Dollar Index has reached a key technical area around 93.80-94.00. As can be seen from the daily chart, below, this area was previously support and corresponds with the 61.8% Fibonacci retracement level of the most recent downswing. A short-term downward-sloping trend line meets the 21-day exponential moving average slightly above this area.

Due to the conflux of so many technical indicators in close proximity, there is a danger that the Dollar Index could resume its downward trend from around this 93.80-94.00 area. If so, a revisit of the prior support at 92.65 or the support trend of the bearish channel around 91.90/92.00 would then become highly likely.  

But the fact that the Dollar Index failed to break decisively below the prior low of 92.65 decisively may indicate a change in the trend as there was clearly not sufficient supply for the buck to plummet towards 90. 

However, while below the above-mentioned resistance 93.80-94.00 range, I would still give the sellers the benefit of the doubt in that this could just have been a normal short-term pullback in a downward-trending market.

This bearish outlook could change should the Dollar Index break above this area decisively, though for the long-term trend to also turn bullish the bulls would require a break above the resistance trend of the bearish channel, at around 95.00/96.00 area.

In any event, Friday’s US jobs report could certainly provide the stimulus for a push in one or the other direction.  Ahead of the data, I wouldn’t be surprised to see the dollar weaken after a three-day rally.  

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.