After a slow start, the Dollar index (DXY) is gaining momentum and is expected to revisit its weekly highs of about 96.30 towards the conclusion of this week.
Following the publication of the November labor market data in the United States, the index advanced for the third session in a row on Friday, and it now hopes to strengthen its recovery above the 96.00 thresholds.
Review Of U.S Fundamentals
In reality, even though the US economy added “only” 210K jobs in November (as opposed to the projected 550K), the unemployment rate moved lower, and average hourly wages disappointed in the negative at 0.3% month-on-month and 4.8% year-on-year, US rates and the currency edged higher.
Yields across the curve have been increasing in recent weeks and the 2y note is flirting with peaks at 0.65% at the moment, while the belly has advanced over 1.45% and the long end is nearing 1.80% at the moment.
It is on route to ending the week with profits for the sixth straight week, supported by the upward trend in US yields and positive results from US basics (which support the notion of a solid recovery).
An increase in risk aversion due to concerns about the omicron COVID-19 strain, and most recently by Powell’s testimony, which proposed the Fed will consider adopting a faster tapering pace at its meeting in December, all point to a rate hike in mid-2022.
Markit will release the final Services PMI, which will be backed up by the ISM Non-Manufacturing Index, to bring the weekly calendar to a close.
Relevant Levels Of The US Dollar Index
DXY CHART Source: Tradingview.com
A breach over 96.93 (the index’s November 24 high) would fully open the door to 97.00 (the round level) and eventually 97.80, depending on how the index traded today (high Jun.30, 2020).
However, the next downtrend hurdle appears at 95.51 (weekly low Nov.30), trailed by 94.96 (weekly low Nov.15), and lastly 94.44 (weekly low Nov.15) (low Nov.18).
After maintaining its upward momentum until November 24, the market is aiming for the 2021 highs at ranges just short of the 97.00 thresholds (November 24), an advance of the round levels at 97.00 and 97.80 (June 30, 2020).
And meanwhile, as long as the DXY remains above the 2-month support line (which corresponds to the September low) at 94.20, more increases in the currency are still possible. Additionally, the 200-day simple moving average (SMA) is still at 92.56, which supports the overall positive outlook.