US DOLLAR ANALYSIS

  • 568K ADP printing promotes further dollar gains.
  • Higher yields giving impetus to further rise in the dollar.
  • The focus is on Friday’s NFP data.

FUNDAMENTAL CONTEXT OF THE DOLLAR

ADP EXCEEDS EXPECTATIONS

ADP employment development data for September hit 568K, greatly exceeding forecasts. Prior to the ADP announcement, the US dollar index edged down as markets waited for the data to print, but quickly regained their bullish momentum. While the historical correlation between ADP and NFP numbers is uninspiring at best, the positive nature of the reading may suggest better-than-expected NFP data later this week.

Source: DailyFX Economic Calendar

THE DOLLAR STRENGTHENED BY THE INCREASE IN AMERICAN TREASURY YIELDS

US 10- and 30-year government bond yields continue to rally towards ADP employment data, which has maintained a favorable environment for the greenback.

LONG-TERM US CASH VS DXY

us treasury yields vs dxy

Source: Réfinitiv

Upcoming unemployment claims and Non-farm payroll (NFP) the data (see timeline below) will provide additional guidance to markets going forward. That being said, I think only a significant underperformance could stop the Fed’s tapering.

Inflationary the pressure persists and is only exacerbated by the current energy crisis and supply disruptions. A reduction in quantitative easing is needed to help stem these headwinds despite recent disappointing labor results.

US dollar economic calendar

Source: DailyFX Economic Calendar

A SECURE GAME

The dollar receives additional support as refuge in particular with regard to Emerging Market Currencies (ME) which has its roots in the growing tensions between the United States and China as well as in the potential default of Evergrande.

Contrary to the above, there are growing fears of a US government default if the Democrats’ proposal to raise the current debt ceiling is again rejected by the Republicans. This will put negative pressure on the dollar if a credit downgrade were to ensue. According to Treasury Secretary Janet Yellen, October 18, 2021 has been retained as the deadline.

TECHNICAL ANALYSIS

DAILY US DOLLAR INDEX CHART

dollar index (DXY daily chart)

Graphic prepared by Warren Venketas, IG

The daily DXY chart above represents a strong bullish market despite being in overbought territory. Dollar bulls are now eyeing 38.2% Fibonacci level to 94.79 (Fibonacci taken from March 2020 high to January 2021 low) last seen in September 2020. There is still room to rise despite the overbought Relative Strength Index (RSI) reading. With a warmonger Fed, this should support dollar prices towards 94.79 short term.

Resistance Levels:

Assistance levels:

— Written by Warren Venketas for DailyFX.com

Contact and follow Warren on Twitter: @WVenketas

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