US Dollar (USD) May Rise Further As The Labour Market Data Shows It's Strong Enough To Withstand Fed's tightening

The World's Leading Economies Not Doing Well And This Is Keeping High Demand For USD

The U.S. dollar, measured by the DXY index, retreated on Friday following the August nonfarm payrolls report. The greenback weakened as a knee-jerk reaction to a mixed employment report. Still, the bigger picture supports the bullish case for the dollar once the dust settles as the labor market keeps showing resilience to Fed’s aggressive tightening policy.

Non-farm Payrolls Exceeded Forecast Hitting 315K

At the time of writing, the DXY trades at the 109.50 area, 0.1% below its opening price, having bottomed in at a daily low of 108.93 after posting on Thursday a fresh cycle high just a couple of pips shy from the 110 level.

The US Bureau of Labor Statistics reported the US economy added 315,000 jobs in August, beating the market's consensus of 300,000 but down from the stunning July reading of 526,000. On the other hand, wage inflation, measured by the average hourly earnings, slowed to 0.3% MoM, below the market's expectations of 0.4%. In addition, the unemployment rate jumped to 3.7% from its previous reading of 3.5%, coming higher than expected.

Non-farm Payrolls Hit 315K

The Fed’s tightening plan probably won’t change as Chair Powell made it clear at Jackson Hole that the committee needed to see “substantial” evidence that inflation is slowing down and that they are willing to see some economic pain.

Robust Labour Market Data Supports Idea Of Potential Further Tightening

In contrast, the jobs report shows that the labor market can handle tighter financial conditions as it beat the market’s expectations for a fifth consecutive month. As an immediate reaction, for the Sept. 20-21 meeting, markets are betting on higher odds of a 75 bps hike of 64% and 36% probabilities of a 50 bps increase.

According to the weekly chart, the technical outlook for the DXY remains bullish as the index posts the third weekly gain in a row.

Read next: Interest rates hiked. The most important indicators continue their downward trend| FXMAG.COM

US Dollar Index - Weekly Chart

DXY weekly chart.

What Do We Learn From US Dollar Index (DXY) Daily Chart?

The positive outlook is also seen in the daily charts, although indicators suggest a deceleration of the bullish momentum. The daily RSI pulled back from overbought territory, while the MACD printed a lower green bar.

On the upside, the next resistances are seen at the cycle high of 109.97, followed by the 2003 highs at the 112.00 and 115.00 levels. On the other hand, supports could be faced at the 109.00 zone, followed by the 108.80 area, and then the weekly lows at the 108.30 regions.

US Dollar Index - Daily Chart
DXY daily chart.
The World's Leading Economies Not Doing Well And This Is Keeping High Demand For USD

Alexander Boltyan

Esperio analysts