US dollar index (DXY) forecast after the strong NFP data

The US dollar index (DXY) rose for the fifth consecutive day as investors reacted to the latest US non-farm payroll data. It rose to $92.66, which is about 3.5% above the lowest level in May. 

US non-farm payrolls

The US labour market is tightening as more states reopen following the relatively successful vaccine rollout. In a report today, the Bureau of Labour Statistics (BLS) said that the economy added more than 850k jobs in June after it added more than 559k jobs in May. This increase was better than the median estimate of 700k. It was also better than the ADP estimate of 685k.

The government added more than 188k jobs while manufacturers added more than 15k jobs. As a result, the unemployment rate rose from 5.8% in May to 5.9% in June. Similarly, the participation rate remained unchanged at 61.6%. Additionally, wages continued doing well in June as companies continued to compete for employees. Average hourly earnings rose from 1.9% to 3.6%.

Recently, many companies have expressed their frustration about labour shortages. For example, United Airlines has been forced to ground some flights because of a lack of workers. Other companies like Southwest Airlines McDonald’s have added salaries to attract and retain employees.

Meanwhile, the number of Americans filing for initial jobless claims has continued to fall. On Thursday, the Bureau of Labour Statistics (BLS) data revealed that the number of Americans filing for jobless claims declined to the lowest level since the pandemic started. Additional data revealed that the number of layoffs in the country has declined sharply recently. 

Therefore, the US dollar index is rising because these numbers are pointing to a relatively hawkish Federal Reserve. In the recent interest rate decision, the Central Bank said that it will start hiking interest rates in 2023, earlier than the expected 2024. Another survey by the Financial Times showed that many economists expect two rate hikes by 2024.

US dollar index technical analysis

The daily chart shows that the DXY found a floor at $89.23 in January this year. It formed what looks like a double-bottom pattern at that level. It has also moved above the 25-day and 50-day exponential moving averages (EMA). Further, the pair is a few pips below the important psychological level at $93.45, which was the highest level on March 31. Therefore, the pair will likely keep rising as bulls target this resistance level.