DXY looks to lose over 2% after this week’s NFP

The strong US data on inflation, jobs, and growth has helped the DXY climb almost 3% this year.

Saqib Iqbal, an analyst at Trading.Biz, thinks the trend is about to change, and we can see the DXY dropping over 2% after this week’s NFP.

• The DXY may drop over 2% after this week’s NFP, signalling a trend change.
• The ADP report and Powell’s testimony suggest a desire to lower interest rates, but the NFP outcome is crucial for confirming the trend.
• If NFP meets expectations, DXY could slide towards 101-level.

He says, “The DXY continues to reflect market expectations for Fed policy. The Fed’s current statements, the ADP report, and tomorrow’s NFP all point to a shift in trend. The NFP is expected to fall by 200,000 from its prior level of 353,000. If these assumptions are correct, the dollar might fall dramatically.”

Yesterday, we had the ADP report and the Fed’s Chairman’s testimony. These events, combined with tomorrow’s NFP, can show us what to expect in March and beyond.

According to ADP data, private-sector employment in the United States increased by 140k in February, with annual pay up 5.1% yearly. It came in below the expected 150k.

Next up was Fed Chairman J. Powell’s testimony. The hearing indicates a desire to lower interest rates to a more neutral level. Still, the central bank cannot do so with inflation remaining over the 2% target and activity data above forecasts. Additional data is needed, but with further signs of a softening labour market, June rate cuts are on the cards.

This is where tomorrow’s NFP comes into play. Friday’s jobs report, the declining quit rate, the contraction of both the manufacturing and service sectors, and the fact that the ADP private employment report posted a 140k increase (and the seventh consecutive reading between 104 and 158,000) suggest that the growth of nonfarm payrolls can be slow.

Economists expect 200,000 growth in February after December’s 333,000 print and January’s 353,000 print, respectively.

The DXY dropped 0.5% on ADP and Powell’s comments. If the NFP came in according to the forecast, the DXY could slide toward 101-level, as the market looks to pounce on dollar shorts.

On the daily chart, DXY highs are located around 105.00, the level it passed on February 14, representing the first resistance area. After this area is passed, we can see a price going towards 106, the level it reached on November 10.

On the downside, the first support level lies at the 200-day MA of 102.77, reached on January 24. If the DXY drops further, it may reach a December 28 low of 100.61, a drop of more than 2.5%.