The U.S. Dollar Index (DXY) is at 97.80. This is a big change in the market before it moves from a redistribution stage at 99.00 into a consolidation stage. Traders are clearly waiting for major economic signals. They’re looking for the Non-Farm Payrolls (NFP) report for August to show a gain of 75,000 jobs — a slight improvement from July’s upwardly revised gain of 73,000. Analysts will be watching these numbers like hawks because they can affect the Federal Reserve’s monetary policy direction.
After the DXY found resistance at the 99.00 level, as anticipated, it started a bearish trend towards the 97.50–97.20 area. The index’s recent movement signifies a rejection of late buyers, prompting a break lower into its current consolidation around 97.80. Traders are getting ready for the next NFP print and the rest of the economic metrics. They are prudently considering how these drivers could influence the dollar’s attractiveness in international markets.
Current Conditions of the U.S. Dollar Index
The U.S. Dollar Index has faced notable pressure in recent weeks, rolling into a distribution phase characterized by weakening demand. The index was unable to hold its gain above the important 97.60 support level. Now, it’s aiming for the lousiest of the low. DXY’s initial target moves up to 97.20. If these bearish trends persist, then it may go lower toward a second extension target of 96.80.
Market analysts believe that whatever happens to the DXY will be largely determined by upcoming economic data releases. A robust NFP report that exceeds expectations, particularly with job creation above 100,000 and stable unemployment, could provide a much-needed lift to the index. A disappointing NFP print would be a game changer though. Bearish dollar sentiments will go up strongly if job creation comes in well under 75,000, or even if unemployment goes up.
Economic Indicators on the Horizon
Apart from NFP, a few other key economic indicators are set to swing market expectations. We expect the unemployment rate for August to increase a tick to 4.3%, from the previous level of 4.2%. This much-expected bump could be a harbinger of tipping the labor market into greater tension, adding complexity to the Federal Reserve’s political pleat.
Manufacturing should remain below the neutral line of 50. This indicates further contraction in the manufacturing sector is likely. A 49 forecast indicates ongoing weaknesses that would only aggravate worries about the economy, as well as jobs growth. In July, per JOLTs Job Openings, we expect to see 7.4 million job openings. This is a decrease from the previously revised 7.437 million and it demonstrates a persistently tight labor market that continues to affect hiring strategies.
Federal Reserve’s Monetary Policy Outlook
The market has been very focused on all of these points of economic data. The CME FedWatch tool underscores this intensity, showing an unbelievable 89.7% possibility of a 25-basis point rate cut at the Federal Reserve’s meeting on September 17. Such expectations are the result of heightened inflation and growth fears which have led to speculation on more easing measures.
Markets participants are positioning themselves in expectation of these releases. As we approach this fourth quarter, it’s evident that more pronounced misses to these forecasts may be a catalyst for increased volatility for the DXY. In the event that NFP data beats expectations by a wide margin, this could set the stage for a short-lived recovery in the dollar. If these figures paint a picture of weakness or instability within the US labor market, the bearish outlook for DXY may further cement itself.