Dollar Decline Likely To Persist Amid a Significant Fall in the Job Growth

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The dollar has been under attack for the majority of the week, and following the large setback in jobs data, selling picked up further. The non-farm payroll data may suggest that the job market rebound has taken a “significant setback” rather than “considerable additional growth.” The Fed’s declaration of tapering in September is essentially off the cards.

The performance level of US stocks was uneven, with the NASDAQ and S&P 500 setting new highs while the DOW remained locked in a range. The 10-year yield was similarly stuck in a range, but it managed to close above the 1.3 level.

Bets on USD index futures declined on both sides in the last week of August as traders digested Fed Chair Powell’s Jackson Hole address and awaited the August employment report. Because concern about the Fed’s tapering diminished following both events, the euro and commodity currencies will likely climb in the coming week.

The Dollar’s near-term weakness appears to be here to stay. To confirm bearishness, the Dollar index must break through the critical support level of 91.78. In the EUR/USD, this would equate to a solid break of the 1.19 handle. Gold, on the other hand, will need to break through the 1832 resistance level to double-confirm Dollar selling. If you’re looking to go long against the greenback, the Australian dollar could be a good bet, as it continues to surge on the upswing. However, this would be contingent on how the RBA’s policy choice is received.

Dollar Index Aims for a Major Support Zone 

In the prior week, the dollar index fell substantially as a result of a broad-based selloff in the currency. On bearish divergence in the daily MACD, 93.72 is verified to be a short-term top. The primary concern is if the price action from 89.20 is a three-wave consolidation that ended at 93.72 after failing at 94.46 to complete a 38.2 percent retracement of 102.99 to 89.20.

As the dollar falls below important levels of support, the Euro has begun to outperform the greenback. The price is hitting resistance in the 1.1880, putting the attention on the downside for a correction in the meantime. On a restest, the previous level of resistance, near 1.18, may be targeted.

For the time being, the DXY focus is on the 91.78 support level. If there is a sustained breach there, this medium-term bearish thesis will be confirmed, and a test of the 89.20/53 support zone will be next. If that occurs, the entire downtrend from 102.99 (2020 high) is likely to proceed through 89.20, and probably through 88.25 (2018 low) as well.