The US Dollar Index (USDX) has bounced off a key technical support at the 80.00 major psychological level. This came after the stronger than expected US non-farm payrolls release last Friday, which showed that the economy added 175,000 jobs for the month of February, higher than the estimated 151,000 increase. The same report revealed, however, that the jobless rate climbed form 6.6% to 6.7%.
Analysts speculate that the reason for the overall weakness of the US dollar during that release was mostly due to the rebound in risk appetite. This was sparked by easing tensions in the Ukraine, although Russian forces are still keen to take over Crimea. In addition, the increased jobless rate puts it farther away from the Fed’s 6.5% target wherein they would start considering hiking interest rates.
Fed Chairperson Janet Yellen has previously reiterated that the US central bank will still keep rates at their current levels even if the unemployment rate hits 6.5% since it is not a comprehensive indicator of labor market conditions. Policymakers are also looking at other jobs components to assess whether the employment situation is improving or not.
USDX Technical Forecast
The 80.00 level has acted as a strong support zone in the past, suggesting that USDX may be in for extended gains from here. However, the pair is still in a shorter-term downtrend starting from its selloff around the 81.75 area earlier this year and there have been no confirmation signals indicating that the previous trend is about to turn.
In addition, USDX has just breached medium-term support around 80.25, indicating that the selling pressure is strong at the moment. Further declines could take the pair much lower, perhaps until the previous lows around 79.60.
Much could hinge on US retail sales data up for release later on this week and the FOMC interest rate decision next week. Fed Chairperson Yellen is likely to confirm that the central bank will push through with its taper plan but any hints of deviating from their time frame could push USDX in a clearer direction.
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