DXY: US dollar index pulls back ahead of nonfarm payroll 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 Oct 1, 2020
  • The US dollar index declined slightly on the first day of the fourth quarter.
  • In the United States, the number of initial jobless claims fell to 837k from the previous 873k.
  • The manufacturing sector remained in the green in September.

The US dollar index (DXY) has started the fourth quarter in the red as worries grow about US stimulus. The index is trading at $93.75, which is slightly below this week’s high of $94.75.

Dollar index
US dollar index starts Q4 in the red

US initial jobless claims falls

The dollar index is falling even after some encouraging data from the United States. Yesterday, data from the Bureau of Labour Statistics (BLS) showed that private employers added more than 749k jobs in September. That was better than the median estimate of 660k from a survey of economists polled by Reuters.

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Today, data from the Labour Department showed that the initial jobless claims rose by 837K in the past week. That was better than the 850K that analysts were expecting. It was also better than the previous week’s 873k. Most importantly, it was the lowest increase since March, when the claims rose by more than 6.8 million.

Meanwhile, the lagging continuing jobless claims declined to 11.7 million from the previous 12.7k. These numbers came a day before the Labour Department is set to release the official nonfarm payroll data. According to Bloomberg, analysts expect the numbers to show that the American economy created more than 850k jobs in September. They also see the unemployment rate falling to 8.2% and wages rising by 4.8%.

Still, the US economy is far from going back to pre-pandemic levels. So far, the economy is yet to fill about 10 million of jobs that were lost in the first months of the pandemic. And it’s getting worse. Yesterday, Disney announced that it will slash more than 28,000 of its workforce. At the same time, airlines have said that more than 32,000 jobs were at risk unless they secure fresh funding.

US manufacturing sees gains

Meanwhile, data by the Bureau of Economic Analysis showed that personal spending increased by 1% in August while income fell by 2.7%. The PCE index rose by 0.3% in August and by 1.4% on a year-on-year basis.

Another data released by Markit showed that the US manufacturing PMI increased to 53.2 in September. That was better than the previous month’s increase of 53.1. A PMI reading of 50 and above is usually a signal that the industry is expanding.

According to Markit, this increase was mostly because of a rise in new orders, business confidence, and fuller order books. In a statement, Chris Williamson said:

“Encouragingly, companies reported a marked upturn in demand for plant and machinery, which suggests firms are increasing their investment spending again after expansion plans were put on hold during the spring.”

US dollar index technical outlook

US dollar index
US dollar index technical chart

The four-hour chart shows that the US dollar index has been falling after it reached a high of $94.73 on September 25. Today, the index moved to the 38.2% Fibonacci retracement level at $93.55. It also moved below the 25-day and 15-day exponential moving averages. Also, the price is below the descending green trendline. Therefore, the index is likely to continue falling as bears aim for the 50% retracement level at $93.25. Start your trading career by reading our review of the best forex brokers.

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