USD Outlook – The direction of travel may be lower as the jobs data is exaggerated

City says 7,000 summer jobs are available for Boston youth ages 14 to 18

US dollar forecast:

  • The US economy added 236,000 jobs in March, just below expectations. Meanwhile, average hourly earnings eased more than expected, falling to 4.2% year-over-year.
  • However, the labor market report may not fully capture the fallout from the collapse of SVB and SBNY
  • Despite the market reaction on Friday, the path of least resistance is likely to be for the U.S. dollar

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The US dollar rose slightly heading into the long weekend after the release of the US March Nonfarm Payrolls report in a thinly liquid session due to the Good Friday holiday. On the context front, US employers added 236,000 workers last month, just short of expectations for a gain of 239,000 jobs. Meanwhile, average hourly earnings cooled more than expected, declining to 4.2% yoy from 4.6% yoy in February, marking the lowest level since May 2024.

March NFP Report At a Glance

source: DailyFX Economic Calendar

Although employment growth has remained strong by historical standards, it’s possible that the most recent employment survey did not fully capture the fallout from the collapse of Silicon Valley Bank and New York’s signature bank given the timing of the BLS collection of data. This means that hiring may have been overextended by only reversing trends earlier in the month when the turmoil in the banking sector had not yet manifested itself.

To err on the side of caution and buy more time to assess the economic outlook in the wake of recent financial system pressures and turmoil, The Fed may forgo raising borrowing costs at its May meetingeffectively suspending its crackdown. This scenario could reinforce a downward correction for the US dollar by guiding traders to discount with greater conviction of interest rate cuts for the second half of the year.

In terms of technical analysis, the US dollar, according to the DXY indicator, continues to trade above a key support level near the 102.00 handle, which corresponds to the 50% Fibonacci retracement of the January 2024/September 2024 advance. If prices can decisively breach this floor in the coming days Sellers can launch an attack on the February lows of 100.82. On further weakness, focus moves to 99.00, 61.8% Fibonacci retracement of the previous move discussed above.

On the flip side, if the DXY surprises and starts to rebound meaningfully, initial resistance comes in at 103.40, just a touch below the 50-day SMA. However, if this ceiling is lifted, we cannot rule out a rally towards trendline resistance at 104.50. However, a bullish scenario seems far fetched at this point, given the negative sentiment surrounding the US dollar.

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USD Technical Chart (DXY)

US Dollar Index (DXY) chart created using TradingView