At the same time, technical signs are emerging of a dollar recovery – a sign of hope despite last week’s dollar weakness across the board. On Tuesday, the dollar finally broke through this important resistance level of 99.129, constituting a big change in the dollar’s trend. The rising momentum matched the timing of the April JOLTS Job Openings report release. It showed an unforeseen big increase in job openings, surging this to a record 7.391 million from 7.2 million. Analysts had predicted a more modest jump to 7.1 million.
The dollar’s surge has been sustained by a ladder of highly visible technical levels on the chart. The four-hour Fair Value Gap (FVG) is found between the 99.112 and 98.871 levels. This region represents a key inflection area in which price action may either base or reverse. The new first Layer FVG is 99.040-99.103. Conversely, the second Layer FVG goes from 98.939 to 99.026. These levels are very important because if and when the dollar tops, it will likely face significant resistance at these levels.
The dollar continued to climb on Tuesday, an indication that traders were optimistic about the economy after the JOLTS report came out. Market participants are still proceeding with a lot of caution. For a sustainable recovery to take hold, they think that those next U.S. domestic data releases—namely the ADP employment report and ISM Services PMI—need to beat expectations.
Dollar bulls should still be cautious on the dollar’s resurgence, according to analysts. They caution it is still too unsure unless it can breach important resistance levels of 99.668 and then advance to 100. If the dollar does indeed stumble and lose its momentum, we might witness even larger declines in a number of foreign currencies. This includes the EUR/USD and GBP/USD currency pairs, as well as gold prices!
The U.S. dollar is due for a significant rebound. The resultant increased expected strengthening of other currency pairs such as USD/JPY, USD/CAD and USD/CHF can further exacerbate that channel. If the dollar keeps appreciating against these currencies, the signal will be stronger confidence in the U.S. economy. This latter claim is particularly pernicious if labor market indicators suggest robust job growth.
The dollar’s ups and downs have far-reaching effects on global markets. A stronger dollar means that foreign currencies are weak, which changes the flow of international trade and investment. Traders will be scrutinizing the key economic reports due out in the coming days looking for more signals about the dollar’s condition and its likely direction.