March 23, 2023

US Dollar Index (DXY) Fundamental Outlook and Technical Analysis

DXY Fundamental Outlook

On Friday, the US Dollar Index (DXy) was seen trading lower against many currencies, with traders anxiously awaiting the release of the labor market reports. These reports are expected to provide important clues on the Federal Reserve’s future actions concerning rate hikes.

According to a report by Reuters, the non-farm payrolls (NFP) data showed an uptick of 205,000 jobs in February, taking the total to 517,000 jobs. This data marks a strong recovery from January’s dismal figures, which saw a decline of 166,000 jobs.

The better-than-expected NFP numbers have been attributed to several factors, including the recent easing of COVID-19 restrictions in China, leading to a steady stabilization of global supply chains.

The DXY index is currently hovering around the 105.195 mark, representing a significant decline of 0.10%. On Thursday, the DB US dollar bullish fund UUP was seen at $28.53, down by 0.27 in response to the dollar’s downward trend.

This decline was driven by a rise in jobless claims in the United States, which suggests a weakening in conditions in the labor market and has tempered expectations of further rate hikes from the Federal Reserve.

Following the increased unemployment benefits claimed, investors have begun adjusting their bets on the expected duration of rate hikes.

Futures pricing now indicates a 54% chance that the Fed will raise interest rates by 0.5%, compared to a majority of 70% before the labor market data was released. If the interest rates are hiked, they are expected to peak at 5.5%, a five-year high.

According to FXempire, the rise in unemployment claims has raised concerns among policymakers about the health of the labor market and the pace of economic recovery. As a result, some analysts believe the Federal Reserve may delay rate hikes to support the labor market and stimulate economic growth.

Daily Technical Analysis of The DXY

Based on the daily swing chart, the main trend for the US Dollar Index (DXy) appears to be upward. Therefore, if the index continues to trade above the key level of 105.878, it will signal the resumption of the uptrend.

On the upside, the index faces a long-term resistance level of 105.723, which could stop the rally at 105.870. However, if the index breaks above this level, it could indicate a further upside potential, with the next closest pivot level at 105.958.

If the US Dollar Index (DXY) manages to sustain a move above the key resistance level of 104.958 in the upcoming sessions, it could create upward momentum for buyers. In this scenario, investors may take long positions on the index, anticipating a potential surge into resistance levels found at 105.723 and 105.871.

However, if the DXY fails to break above this resistance level and instead consolidates below it, it could signal the presence of sellers in the market. As a result, the DXY could generate enough downward momentum in this bearish scenario, potentially targeting the support level found at 104.095.

The week has been packed with economic releases worldwide, and as the last of the week’s data traces in the markets will look out for investor reactions to the data. Of course, the BoJ will not change its interest rates even with the new governor taking the helm, but the foundation is set for future hikes.

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