DXY Rejection | update Midweek Geo-political/ Fundamental |
The US Dollar Index (DXY) has continued to fall despite reaching a new yearly high in the middle of the month. Is this, however, a brief respite or the start of a more serious downturn? It's difficult to say for sure at this point. True, the trend since the May low has been shaky, and the DXY is no better off now than it was two months ago, but that does not rule out further gains in the near future. A trend-line test is currently taking shape, but the trend-line isn't the strongest because it only has a few connecting points. It won't be a particularly significant event unless it breaks. The longer the slide continues, however, the more likely it is that we are witnessing the start of a larger reversal, rather than a corrective move for the USD that would result in new yearly highs for the currency. The price movement has left the outlook in limbo, with little to rely on for confidence. For the time being, it is prudent to proceed with caution until we have more price movement to deal with. If the stock market rises significantly in the near future, it may be enough to put the ball back in the buyers' court. On the other hand, if the market continues to fall, it may provide an opportunity for sellers to enter and capitalize on the market's resulting weakness.
The Non-farm Payrolls report, which is due out this Friday, will be closely watched for clues as to how quickly the Federal Reserve intends to begin winding down its asset purchase program. According to the chairman of the Federal Open Market Committee, Jerome Powell, the economy has met the marker for "significant further progress" in terms of inflation; however, the economy has not yet met the marker for "significant further progress" in terms of employment, putting even more emphasis on job creation. The Labor Department's Nonfarm Payrolls data on Friday will be the last of its kind before the Federal Reserve's September rate decision, which will be a quarterly rate decision because the bank will also be providing new guidance and predictions. In general, if the bank does intend to taper asset purchases by the end of2021, the September rate decision will almost certainly be critical in terms of the Federal Open Market Committee (FOMC) revealing when and how they intend to do so. The failure of Friday's jobs data provides even more incentive for the Fed to remain loose and inactive, deferring the start of its taper until 2022, which could result in some aggressive USD-weakening in the short term. A bearish trend is holding firm in the short term, while the longer-term trend has retained some bullishness, with the longer-term trend pointing back to the June/July lows, which are still about 3% away.
In the current USD scenario, a former support level of around 92.80-92.90 has been identified as resistance. Another major area of resistance is located a little lower, around 92.45, and it is the same area that was hit by the swing-low in mid-August. There are a few other Fibonacci levels in this area, in addition to the 92.45 area.
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