- The April US Nonfarm Payrolls report fell short of expectations, revealing a smaller-than-anticipated increase.
- This has led to heightened speculation of a September rate cut, adding downward pressure on the USD.
The US Dollar Index (DXY) plummeted towards the 105 level, registering significant losses at the close of the trading week. This decline followed Friday’s release of disappointing US Nonfarm Payrolls (NFP) data for April, prompting investors to sell off the USD.
The US economy is displaying a mix of signals, with strong demand and a tight labor market leading to gradual yet notable wage growth, which in turn contributes to inflation. Federal Reserve (Fed) Chair Jerome Powell remains cautious regarding the uncertain path of inflation, stressing that the Fed’s measures have prevented the economy from overheating. The weak labor market data on Friday prompted investors to raise the likelihood of interest rate cuts in September.
Daily digest market movers: DXY down on weak NFPs
- The US NFP report for April revealed an increase of 175,000 jobs, falling short of the anticipated 243,000 and marking a decline from March’s revised growth of 315,000.
- Concurrently, the unemployment rate rose from 3.8% to 3.9%. Average Hourly Earnings, indicating wage inflation, dipped to 3.9% YoY from 4.1%.
- These disappointing labor market figures have heightened market expectations for a Federal Reserve rate reduction by September.
- Consequently, US Treasury bond yields saw a significant drop, with the 2-year yield at 4.80%, while the 5-year and 10-year yields declined to 4.50% and 4.58%, respectively.
DXY technical analysis: DXY displays an overall bullish bias despite imminent selling pressure
The technical analysis of the DXY suggests a predominant bullish trend, albeit with a potential bearish resurgence on the horizon. The Relative Strength Index (RSI) shows a downward trend in negative territory, indicating increased selling pressure from bears. Despite this, the pair continues to trade above the 100 and 200-day Simple Moving Averages (SMAs), indicating resilience against the bearish momentum.
Additionally, the Moving Average Convergence Divergence (MACD) displays rising red bars, suggesting a strengthening bearish presence. While the index has dipped below the 20-day SMA, it’s worth noting that the longer-term SMAs act as robust support levels, upholding the overall bullish perspective.
