DXY: US dollar index notches best week since May as jobless rate fall

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 4, 2020
  • The US dollar index is on track for its best week since May on mixed nonfarm payroll numbers.
  • The economy added more than 1.37 million jobs in August while the unemployment rate fell to 8.4%.
  • The economy still has more than 10 million more jobs to fill to go back to pre-pandemic levels.

The US dollar index (DXY) rose today as traders reacted to strong nonfarm payrolls (NFP) data from the United States. The index is trading at $92.81 and is on track for its best week since May.

US dollar index
US dollar index rises

US NFP data miss estimates

American employers added more than 1.3 million jobs in August, as the country continued to open. This number was lower than the 1.7 million jobs that were created in July. It was also lower than the 1.4 million that analysts polled by Reuters were expecting.

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As a result, August was the fourth consecutive month in which the American economy added jobs. The additions bring the total number of jobs created in the past four months to more than 10 million. Still, the economy has more than 10 million jobs to fill to go back to pre-coronavirus levels. That is because the country lost more than 20.6 million jobs in April.

According to the bureau, the government added more than 344k people in their payrolls while manufacturing jobs increased by more than 29,000. Private payrolls increased by more than 1.2 million, which was higher than the 420K that were estimated by ADP on Wednesday.

Meanwhile, the U3 unemployment rate declined to 8.4% in August from the previous 10.2%. This number measures the number of people of working age who are not employed. At the same time, the U6 unemployment rate, which includes the people working part-time, declined to 14.2%. Also, the important participation rate increased to 61.6%.

These numbers come at a time when the American economy is facing its worst financial crisis since the Great Depression. The number of coronavirus cases has risen to more than 6.2 million while more than 180K people have died. At the same time, states like New York and California have put restrictions on some businesses. As a result of all these the country is in a technical recession having contracted by 5% in the first quarter and by 32% in the second quarter.

Recent data impressive

Still, recent numbers from the United States have been impressive. On Tuesday, data from ISM showed that the manufacturing PMI rose to 56.0 in August. Another number from Markit showed that the PMI rose to 53.1 during the month. That was a sign that the manufacturing sector continued to expand in the second quarter.

On Wednesday, data showed that factory orders increased by 6.4% in July. And yesterday, economic data from ISM showed that non-manufacturing PMI declined to 56.9 while the services PMI from Markit rose to 55.0. Other impressive numbers from the US have been retail sales, durable goods sales, and car sales.

Therefore, these numbers show that the American economy will likely see a double digit rebound in the third quarter. Subsequently, the Fed could feel free to ease the expansionary policies, possibly by tapering the asset purchases.

US dollar index technical outlook

US dollar index
US dollar index technical analysis

The daily chart above shows that the US dollar index has been in a strong upward trend this week. It is now trading at $92.81, which is slightly below the upper side of the descending channel that is shown in black. The price is also below the 50-day and 100-day exponential moving averages. Also, the signal and main line of the Stochastic oscillator are moving higher. Therefore, there is a possibility that the price will continue rising as bulls aim for the next resistance at $94.00.

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