Jobs number will be key to U.S. Dollar Index performance, writes Fawad Razaqzada.
The U.S. Dollar Index is trading near the top of its six-month trading range ahead of Friday’s US jobs report. The greenback’s strong performance is surprisingly to say the least given the fact that the Federal Reserve recently made a big dovish shift in its policy stance. Obviously dovish central banks elsewhere help explain away some of the dollar’s bizarre strength. Even so, it is remarkable that the dollar is still showing this much strength despite the Fed’s shift on interest rates. Not only do rate setters at the central bank expect to hold interest rates unchanged this year, the markets have gone a step further by pricing more than a 50% chance of an interest rate cut in 2019. Are investors being unreasonably dovish or is the Fed being too complacent over the risks facing the economy?
Tomorrow’s jobs report could provide some answers and it may help fuel the dollar’s next move. A very poor nonfarm payrolls report may finally help to derail the dollar’s rally, while a surprisingly strong figure could cause the DXY to breakout above its key resistance range in the 97.47-97.71 area. In the event of a potential breakout, the next question would be this: Can the dollar form a base above this 97.71 technically-important level, given the central’s dovish stance? We would turn negative towards the dollar if the bulls fail to hold the breakout above this resistance zone. In any case, we will turn decidedly bearish if and when the dollar eventually falls below its most recent low at 97.75.
Source: eSignal and FOREX.com
