The USD Index has had a rollercoaster week. After suffering from a depressing month in June, it has started July on a shaky note but seems to have found some relief from the Non-Farm Payrolls (NFP) data. US unemployment rate fell from 13.3% to 11.1%, along with a positive employment change from 2699K in May to 4800K in June. Initial jobless claims fell marginally, but the lift in jobs numbers was enough to increase bids on the US Dollar and lift the USD Index on the day. However, significant headwinds remain, as the coronavirus infection rate continues to rise all across the US. This scenario has led Wells Fargo analysts to term the recent jobs data in the US as “outsized gains”.
The Wells Fargo analysts note that the 7.5million job gains in May and June still leave the US employment market with a “long way to go” to recover the 22 million jobs that went away in March and April, at the peak of the 1st wave of the coronavirus pandemic in the US. The bank also sees the increase in coronavirus cases that mark the 2nd wave as a source of concern that “a significant number of individuals could become furloughed again”.
This situation makes for a continuation of the tumultuous ride on the USD Index.
Technical Outlook for DXY
The DXY is up today by 0.13% and is trading at 97.28. Price activity continues within an ascending channel that marks the retracement consolidation following the sharp drop from 99.98 on 25 May to 10 June 2020. This picture resembles a bearish flag pattern which is still in evolution.
The daily candle is sitting on the 97.16 support line. A bounce from this area targets 97.71, which is the site of the 38.2% Fibonacci retracement from the 24 April swing high to the 10 June swing low. Further advance that breaks above this level targets the 50% retracement level at 98.29. Only a rise beyond this area which approaches 98.60 and 99.42 (additional upside targets) would invalidate the bearish flag.
On the flip side, a breakdown below the 97.16 support completes the bearish flag pattern and sets it firmly on the path to a measured move that would potentially have a price objective of 94.62. However, this price objective can only be attained if the price move takes out the downside targets at 96.46 and 95.72. Supporting this view on a fundamental basis would be further weakening of the greenback.