DXY: Dollar index slips after the weak US non-farm 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 wife, son,… read more.
on May 7, 2021
  • The US dollar index declined on Friday after the US published the latest NFP data.
  • The non-farm payrolls rose at a slower pace than expected.
  • The unemployment rate rose to 6.1% in April this year.

The US dollar index dropped for the third straight day after the US published the latest non-farm payroll data. It dropped to $90.54, which is 2.90% below the year-to-date high of $93.42.

US dollar index price action

US non-farm payrolls data

The US economy is firing on all cylinders, leading many to question whether the Federal Reserve is justified in maintaining the current dovish tone. In April, data showed that consumer price index (CPI) increased to 2.6%, which is above the Fed’s target of 2.0%. Further data showed that all sectors are doing relatively well.

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And today, data by the Bureau of Labour Statistics (BLS) showed that the economy’s labour market is doing well. It added more than 266,000 jobs in April, after adding more than 916,000 in March. The number was significantly lower than the median estimate of 978,000.

Indeed, according to the Wall Street Journal, many companies are struggling to find workers. The report cited the fact that millions of Americans are receiving more money in unemployment insurance than they would receive at work. 

Meanwhile, the unemployment rate rose from 6.0% in March to 6.1% in April. This was worse than the median estimate of 5.8%. The participation rate also rose in April while wages held steady.

The NFPs came two days after ADP reported that the private sector employed more than 755k jobs in April. And on Thursday, data by the BLS said that the number of people filing initial jobless claims declined from 560,000 to 498,000 last week. That was better than the estimated 540,000. 

The US dollar index declined as the currency fell against most peers. It dropped by 0.20% against the Swiss franc, British pound, and Canadian dollar. This is partly because most forex traders were already expecting strong NFP data based on the recent initial jobless claims data.

US dollar index technical forecast

US dollar index
US dollar index chart

The DXY has been on a downward trend this month. It is between the 61.8% and 78.6% Fibonacci retracement level. It is also along the lower line of the Bollinger Bands while the Moving Average Convergence Divergence (MACD) has moved below the neutral line. Therefore, the index may keep falling as bears target the next key support at $90.40. This price action will be invalidated if the price manages to move above this month’s high of $91.47.

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