DXY: US dollar index prints lower after weak non-farm 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 Jun 4, 2021
  • The US dollar index declined after the relatively weak non-farm payroll data.
  • The American economy added more than 559k jobs in May.
  • The unemployment rate moved below 6% while wages rose.

The US dollar index (DXY) darted lower after the US published the relatively strong non-farm payrolls (NFP) data. It rose to $90.65, which was more than 1% above the lowest level this year. 

Non-farm payrolls data

The US labour market is tightening as the country reopens. On Thursday, data by ADP Institute showed that the country’s private sector created more than 965k jobs in May. On the same day, data by the Bureau of Labour Statistics (BLS) showed that the number of initial jobless claims declined to the lowest level since the pandemic started.

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And on Friday, data by the BLS revealed that the non-farm payrolls increased by 559k in May after adding more than 266,000 jobs in the previous month. This figure was worse than the median estimate of 675,000. 

The unemployment rate declined to 5.8% in May after it rose to 6.1% in April. Further, the participation rate dropped to 61.6% while the average hourly earnings rose by 2.0% in May. 

These numbers provided more evidence that the American economy is doing relatively well, helped by the ongoing vaccination and reopening drive. It has also been helped by the policies by the Federal Reserve and the massive stimulus offered by the Federal government. In the first quarter, the Trump and Biden administrations offered more than $2.8 trillion in stimulus. 

Therefore, with the unemployment rate falling and inflation comfortably above the Fed’s target of 2.0%, there are concerns that the Fed will join the tightening bandwagon. Other central banks that have started or signaled that they will start tightening are the Bank of Canada (BOC), Reserve Bank of New Zealand (RBNZ), and Norges Bank. 

Still, in previous statements, Jerome Powell and other Fed officials have signaled that the current strength of the economy is transitory.

US dollar index technical analysis

US dollar index
US dollar index chart

The four-hour chart shows that the US dollar formed a triple-top pattern slightly below the $90 handle. In technical analysis and price action analysis, this is usually a bullish sign. The index has also moved above the neckline of this pattern at $90.47 level. Also, it has moved above the 25-day and 15-day moving averages (MA). 

Therefore, there is a possibility that the index will keep rising as bulls target the next resistance at the 38.2% Fibonacci retracement level at $91.

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