US Dollar tallies a winning week, focus shifts to inflation data

  • DXY Index retreats after the latest string of US data holds onto weekly gains
  • United States NFPs from December were higher than expected, as well as Average Hourly Earnings, while the Unemployment Rate stood at 3.7%.
  • The Services ISM PMI from the same month was disappointing.

The US Dollar (USD), represented by the Dollar Index, is currently trading just above 102.40 with slight losses due to the markets adjusting dovish bets post the release of December’s Nonfarm Payrolls (NFP) and the ISM PMIs. 

From indications in the last 2023 Federal Reserve meeting, a dovish stance was apparent. The Fed expressed comfort with cooling inflation and projected no rate hikes until 2024, suggesting 75 bps of easing. As for now, market predictions hint towards a rate cut in March followed by another in May, and such a position signals a bearish climate for the US Dollar, as lower interest rates might drive liquid capital to higher yield markets.

Daily digest market movers: US Dollar under downward pressure despite strong NFP, ISM PMI weighs

  • The ISM Services PMI for December came in at 50.6, missing the consensus of 52.6 and lower than the previous figure of 52.7.
  • December’s Average Hourly Earnings saw a monthly increase of 0.4%, outpacing the consensus of 0.3% and matching the previous figure.
  • December Unemployment Rate remained steady at 3.7%, lower than the 3.8% expected.
  • The Nonfarm Payrolls report surpassed expectations with the addition of 216,000 jobs, beating the 170,000 job consensus and the previous 173,000 figure.
  • Despite the strong labor figures, markets seem to be weighing in more poor ISM figures and rushed to bet on a less aggressive Fed.
  • Fed predictions suggest no hike is anticipated for the January meeting, with only a 15% probability of a rate cut. The market consensus now points toward the likelihood of rate cuts in both March and May of 2024, with the odds of the easing cycle starting in the third month at 70%.

Technical Analysis: DXY index seller’s momentum resumes as bulls give up

The Relative Strength Index (RSI) is charting a negative slope in the negative territory, suggesting a bearish trend prevalent in the DXY. Selling momentum seems to have a stronger hold, reflecting the downward drift of the RSI.

The Moving Average Convergence Divergence (MACD) is showing rising red bars, implying that negative momentum is gradually escalating, further reinforcing the bearish outlook. 

In regards to the Simple Moving Averages (SMAs), the index is struggling around the 20-day SMA and is still below the longer-term 100, and 200-day SMAs. indicating that on the broader context, the sellers are comfortably in command.

In conclusion, the indicators on the daily chart reflect a dominant bearish force in the short term, amplified by the repeated indication of the bulls losing ground and failing to hold the traction gained in the last session. This suggests there may be more downward movements on the horizon.

Support levels: 102.15 (20-day SMA), 101.80, 101.70.
Resistance levels: 102.50,102.70, 103.00.

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