The US dollar index (DXY) crashed to the lowest level since February 26 after the disappointing US jobs numbers published on Friday. It is trading at $90.27, which is 3.5% below the highest point in March this year.
Disappointing US jobs data
On Friday, everyone was waiting for robust employment numbers from the United States. Furthermore, the economy had added more than 955k jobs in March, and on Wednesday, data by ADP revealed that the private sector added more than 700,000 jobs.
Further, data by Markit and other research agencies showed that all sectors were doing well as the economy recovered. In fact, the manufacturing and services PMIs remained above 50 in the past few months straight. Most importantly, the number of Americans filing for initial jobless claims dropped in the previous week.
As such, the median estimate was for the economy to add more than 978,000 jobs, according to Bloomberg. As such, most people were surprised when the BLS published weak results. Overall, the data showed that the American economy added just 255,000 jobs while the unemployment rate rose from 5.9% to 6.1%. Worse, the bureau also downgraded the April jobs numbers from more than 900k to 770k.
The US dollar index crashed after the release since the numbers seemed to justify the dovish stance of the Federal Reserve. In its past interest rate decision, the bank said that it expected to hold the current easy money policies for a while. Precisely, it cited the uneven state of the ongoing recovery.
A dovish Federal Reserve is usually a bearish thing for the US dollar index. That’s because some other central banks have started turning hawkish. Last week, Norges Bank said that it would start hiking rates in the second half of the year. Before that, the Bank of Canada (BOC) started tapering its asset purchases. The Bank of England (BOE) is also expected to start tapering in the near future.
Retail sales and inflation ahead
This week, the US dollar index will react to a few Fed officials’ speeches, retail sales, and inflation numbers. On Tuesday. Mary Daly, Raphael Bostic, John Williams, and Rael Brainard will deliver statements that will be closely watched because they come after the weak job numbers.
On Wednesday, the statistics agency will publish the latest consumer price index (CPI). Economists expect the data to show that the headline CPI surged to 3.6%, substantially higher than the Fed target of 2.0%. They also see the core CPI rising to 2.3%, the first time it has crossed the 2.0% level in more than a year. Indeed, a report in today’s Wall Street Journal shows that many families have started to see the impact of higher prices on their bills.
The data will be followed by the initial jobless claims on Thursday and retail sales on Friday. The number of Americans filing for unemployment benefits is expected to decline while retail sales surged because of the stimulus package.
US dollar index forecast
The daily chart shows that the US dollar index has been in a downward trend in the past few months. Indeed, it had declined by more than 12% from its highest level last year.
The index remains below the short and long-term moving averages and the Ichimoku cloud. It also seems to be forming a head and shoulders pattern, which is usually a bearish signal. Therefore, the index will likely continue falling as bears target the year-to-date low of $89.30.