The US Dollar Index has started to show signs of struggling to break to new highs ever since March’s FOMC meeting. Although the Fed’s message overall has been for a rise in interest rate hikes, the fact remains that no is sure in regards to the timing of the rate hike and also the comments from Janet Yellen about the appreciating US Dollar in the current economic conditions.
After briefly hitting the highs of 100, the US Dollar Index has eased back and dipped to as low as 96.42 in recent times, considering the strong rally enjoyed by the Greenback, this correction is quite significant in its own way.
The 4-hour chart for the Dollar Index shows price breaking out from the falling price channel that was formed, near 97.79/.80 levels. Currently, price is showing signs of forming a resistance near 98.90 leves and easing lower. It could very well be that the Dollar index will fall back to 97.80 levels to test the break out level before deciding on its future course.
Figure 1: US Dollar Index Analysis, H4 Chart 02/04
This decline however could be critical. If 97.8 level fails to support price, we could expect another test to 96.50 levels in the near term with the final major support coming in at 95.50.
When looking to the monthly charts, we notice that the final target to 102.03 is still pending. If we see a monthly close below 96.9, it could potentially indicate a steeper correction down to the main broken support at 90.28. The correction from current levels down to 90.28 could see a sharp rally across the USD crosses. Therefore, the scope and momentum of this decline to 90.28, if it happens will be critical.
Figure 2: Monthly Chart, US Dollar Index Analysis
The main immediate risk to the US Dollar Index comes from tomorrow’s NFP report for the month of March. Expectations are already a bit lower at 247k and for the most part it is expected that the March jobs report would be soft print, more in the levels of 220 – 240k rather than see another stellar performance. The markets already got a glimpse of the March ADP jobs report published yesterday which was disappointing but considering that the ADP is not a precursor to the NFP nonfarm payrolls, the market reaction was more muted.
As long as the jobs numbers come out above 200k+ the markets would in the longer perspective consider it to be a strong month as well. It is highly unlikely that we will see a sub 200k+ print in March which would be devastating for the Dollar Index.
However, if the NFP numbers fail to meet expectations of 240k at the very least, the US Dollar Index could come under short term selling pressure, which could be a catalyst to push the Dollar Index lower to test 97.8 and 96.5 on break of the first support level.
Because tomorrow is a major bank holiday across the European and US trading sessions, the NFP numbers could be volatile as trading is expected to be subdued.
