Will the NFP report today help the Dollar break 98.5 resistance?

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Following a steady uptrend since touching the lows below 95.5, the US Dollar Index has posted a reversal near the resistance level of 98.50 – 98.0 over the past two days. The rally from 95.5 has seen little to no pullbacks which open the risk for a decline lower. The main event for the US Dollar this week is the monthly jobs report due later this evening. Expectations are slightly hawkish than the previous month with the number of jobs expected to rise 195k, up from 151k previously while the unemployment rate is expected to remain flat, unchanged at 4.90%. On the average hourly earnings, wages are expected to rise at a slower pace of 0.20%, down from 0.50% last month.

Recent ISM manufacturing and non-manufacturing reports show that the numbers were better than expected, but not completely out of the woods. From the ISM manufacturing report, the print of 49.5 showed a fourth straight negative print in contraction but has picked up slightly and inching close to the 50 mark. The ISM manufacturing employment index was at 48.5, up from 45.9 in January but the rate of change was slower pointing to a contraction. Meanwhile, the ISM’s non-manufacturing report showed the employment index falling below 50, indicating a contraction for the first time since 2014 which casts a shadow on today’s NFP expectations.

US Dollar Technical Outlook

The weekly chart for the US Dollar index shows prices currently staying bearish following a retest to the breakout from the rising median line and capping prices near the horizontal resistance of 98.50 – 98.0. Price action on the weekly chart will need to push lower, preferably below last week’s low at 96.75 in order to show a convincing decline, otherwise, the Dollar Index could stay flat over the next week.

US Dollar Index – Weekly Chart
US Dollar Index – Weekly Chart

On the daily chart, the reversal near 98.50 has seen prices breaking blow the two previous higher lows to close yesterday at 97.58. However, the dynamic support from the outer median line could help push prices back to retest the resistance level. A convincing bearish close today could signal a continuation back to 96.50 – 96 support zone.

US Dollar Index- Daily Chart
US Dollar Index- Daily Chart

Finally, on the 4-hour chart, the breakout near the resistance came as prices broke out from the rising wedge pattern. A retest to 98.0 is very likely and if this resistance holds, the Dollar Index could decline to 97.15 and eventually to 96.5 – 96.0 support. The Stochastics on the 4-hour chart is currently in the oversold region, so a short correction to the upside is very much likely.

US Dollar Index- H4 Chart
US Dollar Index- H4 Chart

Overall, the US Dollar Index looks biased to the downside with 96.50 – 96.0 coming into question. To the upside, a convincing close above 98.50 could see another attempt to test the 100 handle.

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John has over 8 years of experience specializing in the currency markets, tracking the macroeconomic and geopolitical developments shaping the financial markets. John applies a mix of fundamental and technical analysis and has a special interest in inter-market analysis and global politics.

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