DXY: US dollar index bounces back ahead of nonfarm payrolls data

By: Crispus Nyaga
Crispus Nyaga
Crispus is an active trader, where he is followed and copied at Capital.com. He lives in Nairobi with his… read more.
on Sep 3, 2020
  • The US dollar index (DXY) rose today ahead of the nonfarm payrolls numbers that will come out tomorrow.
  • Data from the Labour Department showed that more than 881K people filed for initial jobless claims.
  • Another data showed that US trade deficit widened to $63 billion in August

The US dollar index (USD) is in a strong trend ahead of the official nonfarm payroll data from the United States. The index is up for the past three straight days and is trading at $93.00, which is significantly higher than the Monday’s low of $91.76.

US dollar index
US dollar index rises as the chances of a V-shaped recovery rises

Rising likelihood of a V-shaped recovery

The US dollar index dropped to a two-year low of $91.76 on Monday. This decline happened as traders were reacting to a dovish statement by Jerome Powell at the virtual Jackson Hole summit. In the speech, he reiterated that the central bank would let inflation rise above the target 2%.

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This week, however, economic data from the US have been relatively strong. On Tuesday, data from Markit showed that the manufacturing PMI data rose to 53.1 in August from the previous 50.9. Another data from the Institute of Supply Management (ISM) showed that the PMI increased to 56.0.

While the manufacturing sector represents a small share of the American economy, it is still a major sector. It employs more than 15 million people directly. It also helps to support millions of jobs in the services sector.

Yesterday, data from ADP Research Institute showed that private employers created more than 420k jobs in August. That was lower than the 950k that analysts were expecting and the previous month’s 212k. We also received strong car and truck sales and factory order numbers.

And today, the US dollar index reacted to strong economic numbers from the US. According to the Bureau of Labour Statistics (BLS), more than 881K Americans signed for initial jobless claims last week. While still high, this is the lowest increase in months. The lagging continuing jobless claims declined to 13.2 million.

Another data from the Commerce Department showed that the US exported goods worth more than $168 billion and imported goods worth more than $231 billion. This led to the trade deficit expanding to more than $63 billion.

Nonfarm payrolls ahead

All eyes are now on the nonfarm payroll numbers that will come out tomorrow. Analysts expect that the economy added more than 1.4 million jobs in August. They also see the unemployment rate falling to 9.8% as the overall wages rise by 4.5%. If the nonfarm payrolls meet expectations, it will be the third straight month that the economy has added jobs.

It created more than 2.5 million jobs in May, 4.8 million in June, and 1.7 million in July. As a result, the economy will need to add more than 10.7 million jobs to go back to pre-coronavirus levels.

The dollar has gained by 0.60% against the pound, 0.50% against the Canadian dollar, 0.30% against the Swedish krona, and 0.15% against the euro.

US dollar index technical outlook

US dollar index
US dollar index technical chart

The daily chart shows that the US dollar index has been in an upward trend since Tuesday. It is now trading at $93.05, which is higher than this year’s low of $91.75. The price remains below the 50-day and 100-day exponential moving averages while the RSI has been in a strong upward trend. Therefore, I suspect that the dollar index will continue rising as bulls aim for the next target at $94.00.

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