Author: Mr. Amar – Technical Analyst
This week’s US dollar sell-off continues today with the US dollar index (DXY) trading at a one-week low on either side of 96.00. The greenback has now given back nearly all of last week’s Fed-driven rally, with the sell-off helped in part by month-end positioning flows after the heavy losses seen in the US equity space.
The dollar declined on Wednesday after data showed a drop in US private sector employment in January due to the increase in COVID-19 infections. However, the data is unlikely to prevent the Federal Reserve from hiking interest rates at the March 15-16 policy meeting. But the report has eased expectations of a large interest rate increase of half a percentage point.
The DXY Index is now back in the middle of a multi-month trend that has steered the greenback higher since mid-2021. The trend higher remains in place with an unbroken series of higher lows and higher highs present on the daily chart. The DXY Index is also being weakened by strength in some of the other major currencies that make up the basket.
In contrast, the euro gained for a third consecutive day, coming off a 20-month low last week, as eurozone inflation rose to a new record high last month. That fueled bets the European Central Bank (ECB) could raise interest rates sooner than expected.
What is to be expected is the Non-Farm Payroll (NFP) data release tomorrow which analysts predicted the index will fall towards the lower upper trendline channel before bouncing back due to the rate hikes. The data forecast by economists stated that it will fall as ADP Employment data yesterday, hence, traders are advised to focus on short positions during the news.