The US dollar index is moving sideways as investors wait for the latest non-farm payrolls (NFP) data. DXY, which weighs the greenback against a basket of currencies, is trading at $101.80, which is about 3% below the highest level in May.
NFP preview
The US dollar index will be in focus on Friday as investors focus on the upcoming NFP data. Economists polled by Reuters expect that hiring slowed sharply in May as companies continued worrying about inflation.
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The median estimate is that the American economy added 325k jobs in May. This will be lower than the previous increase of 406k.
At the same time, analysts believe that the unemployment rate dropped from 3.6% in April to 3.5% in May. If this happens, it will be the lowest it has been since the pandemic started.
Meanwhile, the most important economic data will be on wages considering that the American inflation has jumped to the highest level in over 40 years. The median estimate is that the average hourly earnings rose by 0.4% on a MoM basis and by 5.2% on a YoY basis.
Data published on Thursday by ADP showed that the private sector added over 128k in May. This was the lowest it has been since February this year when the private sector lost over 300k jobs.
Still, these numbers will likely not have an impact on the Federal Reserve. The bank has already started implementing its quantitative tightening by reducing its balance sheet by about $47 billion per month. The figure is expected to rise to over $97 billion.
At the same time, the Fed is expected to keep hiking interest rates by 0.50% in the next three meetings. Therefore, there is a possibility that the US dollar index will not be volatile after the NFP data.
US dollar index forecast
The four-hour chart shows that the DXY index has been in a strong bearish trend in the past few weeks. It has managed to move below the 38.2% Fibonacci retracement level. Also, the index has dropped below the 25-day and 50-day moving averages while the MACD has moved below the neutral point.
Therefore, the outlook of the US dollar index is still bearish, with the next key support being at $100. A move above the resistance point at $102 will invalidate the bearish view.
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Source: https://invezz.com/news/2022/06/03/is-it-safe-to-buy-the-us-dollar-index-dxy-ahead-of-nfp-data/