- The Dollar Index hovers near key resistance as markets await a pivotal Non-Farm Payrolls report.
- Hawkish Fed signals and global uncertainty continue to underpin the greenback's strength.
- Technical levels at 109 and 107 could dictate the next leg of the dollar's movement.
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The US Dollar recently eased to 108.90 after touching 109.53, its highest level in two years, as traders brace for pivotal economic data. This pullback signals a moment of caution in a rally driven by a hawkish Fed and global economic uncertainty. All eyes now turn to this week’s Non-Farm Payrolls (NFP) report, a critical catalyst that could set the dollar's next course.
Economists predict 154,000 jobs were added in December, a sharp drop from November's 227,000. Any deviation from these expectations could jolt the markets. Stronger-than-expected job growth would reinforce the Fed’s case for prolonged high rates, adding fuel to the dollar’s ascent. Conversely, weaker data might renew speculation about a policy pivot, tempering dollar strength.
Fed Policy Holds Markets in a Tense Grip
Fed Chair Jerome Powell, in his December remarks, made it clear that the central bank remains laser-focused on taming inflation. Although interest rates are slightly less restrictive, Powell emphasized the need for a "higher-for-longer" approach, squashing hopes for early rate cuts.
Other Fed officials echoed this tough stance. Thomas Barkin pointed to persistent economic uncertainty and inflation risks, suggesting no rush to ease policy. Similarly, Governor Adriana Kugler stressed that inflation must show a sustained decline before the Fed considers policy shifts. These hawkish signals continue to underpin the dollar’s appeal.
Uncertainty Over Trump Policies Adds a Twist
The upcoming inauguration of Donald Trump introduces another layer of uncertainty. His proposed tax cuts, tariffs, and immigration policies carry the potential to both boost and unsettle the dollar. While pro-growth initiatives might support the greenback, doubts about their implementation timeline are keeping markets on edge.
Traders remain cautious, unsure how quickly Trump’s policies will take shape or how closely they will align with expectations. This uncertainty adds to the volatility surrounding the Dollar Index.
Global Risks Boost the Dollar’s Safe-Haven Status
Beyond US developments, the dollar's strength draws support from global economic challenges. Europe’s energy crisis and sluggish data weigh heavily on the euro, while China and Japan contend with deflation risks. The People’s Bank of China’s interventions to stabilize the yuan, recently at a 16-month low, highlight persistent struggles in Asia. Against this backdrop, the dollar’s role as a safe-haven asset remains firmly intact.
With these dynamics at play, the Dollar Index is poised to react sharply to the upcoming NFP report and evolving Fed guidance. Additionally, Trump’s economic agenda could inject fresh volatility into the mix, keeping traders on their toes.
Dollar Index Technical Outlook
The Dollar Index faces a critical test at 109, coinciding with the 0.618 Fibonacci retracement. After converting 107 from resistance to support, DXY has gained traction, but traders are in wait-and-see mode ahead of the jobs report. A strong NFP print could drive a decisive weekly close above 109, opening the door to the next resistance at 111.5.
However, the Stochastic RSI on the weekly chart signals overbought conditions, suggesting the potential for a near-term pullback. In such a scenario, 107 could act as key support.
On the daily chart, DXY remains resilient, holding above 108.85, which serves as interim support. The 109 level aligns with the midpoint of a rising channel, reinforcing its significance as resistance. Short-term exponential moving averages (EMAs) point to continued upward momentum, while a bullish turn in the daily Stochastic RSI hints at further gains. A push toward 110 remains on the cards if 108.85 support holds firm.
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