The Dollar Market Outlook: The Dollar Confirms Support
Support Is Confirmed, Trading Ranges Are Present
The Dollar Index has been in a trading range for the last month. A few weeks ago it looked like that range could be broken but it wasn’t, the DXY reversed course and fell back to a stronger support level. Now, with price action bouncing from the $98.50 level the near-term outlook is once again bullish. This time, however, the outlook is bullish within the strengthening trading range, I would not expect the index to set new multi-month highs without a new development in the market.
This week could bring such a development, news is always at hand, and the news this week will be huge. The biggest driver for the market will be the non-farm payrolls report. The NFP is going to show a net loss of jobs, possibly in the range of millions, with a comparable increase in unemployment. With the number of newly reported job-losses topping 30 million the unemployment rate could hit 20%. Other bits of the employment picture we are expecting to get include the ADP report, the Challenger Report, and data points within the NFP like average hourly earnings.
What I expect to see is a huge surge in job losses related to the coronavirus but an otherwise healthy labor market. The Challenger report, for one, should show aggressive hiring across industries unaffected or boosted by the pandemic. Industries like consumer staples, grocery, and tech.
The Technical Picture Is Bullish
The technical picture is bullish because the Dollar Index is confirming strong support at a key support level. The support level is at $98.50, it is strong because it was once a level of resistance and has since been tested for support twice. The candle action supports this notion, the candle is long and green, although the indicators have not yet fired their bullish signals. The indicators are weakly bearish and peaking, consistent with a test of support, so may fire bullish crossovers very soon. When that happens the Dollar Index will be a screaming buy.
The EUR/USD, the dollars most commonly traded pair, does not exactly confirm the bullish outlook. The pair recently moved above resistance where it may now find support. Resistance was at the bottom of a previous trading range, confirmed by the short-term moving average, where support is beginning to show itself. The indicators are consistent with a peak and test of support so we should expect downside action in the near-term. If support fails to hold a move to 1.0800 or 1.0700 is very likely.
