DXY: US dollar index pulls-back after disappointing NFP 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 Feb 5, 2021
  • The US dollar index declined today after the US nonfarm payroll numbers.
  • The economy added just 49,000 jobs below the estimated 50,000.
  • The unemployment rate dropped from 6.7% to 6.3%

The US dollar index (DXY) pared back some of its earlier gains after the US released the first nonfarm payroll numbers of Joe Biden’s presidency. It is trading at $91.20, which is slightly below this week’s high of $91.60.

Dollar index
US dollar index trend

US nonfarm payroll numbers

The American labour market made a modest recovery in January even as the country continued to battle the coronavirus pandemic.

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According to the Bureau of Labour Statistics, the economy added just 49,000 jobs in January after shedding more than 140,000 a month earlier. This reading was worse than the 50,000 that analysts polled by Reuters were expecting. On Wednesday, data by the Automatic Data Processor (ADP) showed that the economy added about 140,000 jobs. 

The unemployment rate declined to 6.3% while the participation rate fell to 61.4% in January. Also, wage growth held steady at about 5.4% while the average work hours increased to 35.0.

Earlier this week, data by Markit and the Institute of Supply Management (ISM) showed that the manufacturing and services PMI remained above 50 in January. This is a sign that the economic growth is starting to pick-up as the country continues its vaccination program. 

Still, the US has a long way to go back to pre-pandemic levels where the unemployment rate was at 3.8%. Indeed, data released on Thursday showed that more than 700k people filed for jobless claims last week. In total, the continuing jobless claims is still above 4 million. 

These numbers came at a time when the Senate is debating Joe Biden’s $1.9 trillion stimulus package. Yesterday, the Senate continued until late as they continued deliberating on key issues like the minimum wage. Therefore, the weak jobs numbers could put more pressure on Congress to add more stimulus. The dollar index is also falling as traders start pricing-in further actions by the Federal Reserve. 

Dollar index technical outlook

Dollar index
Dollar index technical chart

The US dollar index continued its uptrend this week, in part because of weakness of the constituent currencies. On the four-hour chart, it remains above the ascending trendline that connects the lowest levels this week. Also, it is slightly above the 50-day and 25-day exponential moving averages and the Ichimoku cloud

Therefore, even with the pullback, the trend remains bullish so long as it is above these averages. However, a drop below $91 will invalidate this trend.

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