USD Index drops to 2-day lows near 111.50 post-NFP

• The index losses further ground and approaches 111.50.
• The selling pressure gathers traction after solid NFP figures.
• US yields lose momentum and retreat from peaks.

The USD Index (DXY), which tracks the greenback vs. a basket of its main currencies, retreats markedly and drops well south of the 112.00 at the end of the week.

USD Index weaker despite Payrolls

The index sets aside two consecutive daily pullbacks and breaks decisively below the key 112.00 support on the back of the renewed and intense appetite for the risk complex on Friday.

In fact, solid prints from US Nonfarm Payrolls failed to motivate the greenback to reverse course despite the labour market remains tight. This scenario is supportive of the continuation of the Fed’s normalization process via extra interest rate hikes in the upcoming months.

Back to the calendar, the US economy added 261K jobs during last month, although the jobless rate rose to 3.7% (from 3.5%) and Average Hourly Earnings came in above estimates after expanding 0.4% vs. the previous month.

What to look for around USD

The irruption of the selling bias in the dollar drags the index well south of the 112.00 level at the end of the week.

In the meantime, the firmer conviction of the Federal Reserve to keep hiking rates until inflation looks well under control regardless of a likely slowdown in the economic activity and some loss of momentum in the labour market continues to prop up the underlying positive tone in the buck.

Looking at the more macro scenario, the greenback also appears bolstered by the Fed’s divergence vs. most of its G10 peers in combination with bouts of geopolitical effervescence and occasional re-emergence of risk aversion.

Key events in the US this week: Nonfarm Payrolls, Unemployment Rate (Friday).

Eminent issues on the back boiler: Hard/soft/softish? landing of the US economy. Prospects for further rate hikes by the Federal Reserve vs. speculation of a recession in the next months. Fed’s pivot could emerge in … 2024? Geopolitical effervescence vs. Russia and China. US-China persistent trade conflict.

USD Index relevant levels

Now, the index is retreating 1.20% at 111.62 and the breakdown of 109.53 (monthly low October 27) would open the door to 109.35 (weekly low September 20) and finally 107.68 (monthly low September 13). On the other hand, there is an initial resistance at 113.88 (monthly high October 13) seconded by 114.76 (2022 high September 28) and then 115.32 (May 2002 high).