The US dollar rebounded on Friday following the release of data showing that the world's largest economy generated significantly more jobs than anticipated last month. This suggests that the Federal Reserve may postpone its easing cycle this year.
Can Upbeat NFP Push The US Dollar (USDX) Price Higher?
The dollar index (DXY) monitors the currency's value against six main peers, most notably the euro, which increased by 0.8% to 104.91, its highest daily gain since April 10.
The index was expected to increase by 0.2% for the week as the strong employment report counteracted weaker macroeconomic data that had previously prompted investors to contemplate two quarter-point Fed rate cuts in 2024.
The number of jobs added to U.S. nonfarm payrolls increased by 272,000 last month, but revisions revealed that 15,000 fewer jobs were created in March and April combined than had been previously reported. According to economists surveyed by Reuters, payrolls were anticipated to increase by 185,000.
After experiencing a 0.2% rate in April, the average hourly earnings increased by 0.4%. The previous month's upwardly revised 4.0% annual increase was followed by a 4.1% increase in wages over the 12 months ending in May.
Nevertheless, the unemployment rate increased from 3.9% in April to 4%, surpassing a threshold maintained for 27 consecutive months.
What Are The Data To Look At?
The payrolls report frequently influences market and Federal Reserve activity, with the wage number exceeding expectations being particularly noteworthy. The report is seen as bearish due to its potential to bolster the stance of the ardent members of the Federal Open Market Committee (FOMC).
The Federal Open Market Committee (FOMC) is expected to hold this week's policy meeting without any modifications.
According to LSEG's rate probability metric, the rate futures market has priced in a single 25 basis point cut this year. This reduction will occur following the employment data at the November or December meeting.
Following the jobs report, the probability of a rate reduction in September decreased to approximately 50.8%, a slight decrease from the approximately 70% present late on Thursday.
US Dollar Index (USDX) Technical Analysis
In the daily chart of the US Dollar Index (DXY), the post-NFP sentiment took the price higher, creating a bullish breakout in the intraday chart. As a result, the weekly price closed bullish after grabbing a sell-side liquidity sweep from the near-term low. However, the long-term bullish outlook might come after overcoming the 105.20 weekly resistance.
In the daily chart, the volume is supportive of bulls, where the current price showed a bullish daily candle from the visible range high volume line. Moreover, the 20-day Exponential Moving Average is below the current price, supporting the bullish trend.
Based on the current market outlook, an additional bullish pressure with a daily candle above the 105.28 level could validate the long-term bullish trend. In that case, the upward pressure might extend toward the 108.16 Fibonacci Extension level. However, a downside correction is possible, where a bearish reversal with a stable market below the 103.99 level could lower the price towards the 102.50 area.
