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US Dollar Weekly Outlook: In One Word - Frail

US Dollar Weekly Outlook: In One Word - Frail

Nick Cawley, Strategist

US Dollar (DXY) Price, News and Analysis:

  • The latest NFP report highlights job market weakness.
  • Fed expected to keep monetary policy loose for longer.
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The US dollar basket (DXY) hit lows last seen over two-and-a-half years ago this week as relentless selling kept forcing the value of the greenback lower. The backdrop for the US dollar has been deteriorating lately as the Federal Reserve continues to send out signals that it will keep monetary policy ultra-accommodative until a pick-up in the US economy is well underway. In addition, the expected roll-out next of a vaccine inoculation plan in the UK is boosting hopes globally that a cure for Covid-19 could soon be available to all, fuelling a risk-on move in the market and further dampening the allure of the haven US dollar. Further, recent reports that talks on a fresh US stimulus bill are ongoing and that an announcement may be made soon added an extra layer of risk appetite.

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The Federal Reserve is expected to announce that it will purchase more longer-dated US bonds at the December 15/16 FOMC meeting. The Fed will continue in its efforts to keep longer-term interest rates lower to help consumer borrowing and boost the ailing jobs market. The latest US Jobs Report (NFP) highlighted the weakness in the jobs market with 245k new roles created in November, missing estimates of 469k, and October’s downgraded print of 610k from an original release of 638k.

US Dollar Whipsaws on Soft Non-Farm Payrolls Report

The US dollar basket (DXY) chart shows not just the ongoing weakness in the greenback but the acceleration lower this week. Lower highs and lower dominate the chart and any areas of horizontal support are seemingly taken out with ease. The moving average set-up is negative after a ‘death-cross’ was made on July 2 around the 97 level and there is little in the way of support until the February 2018 low print at 87.90.

There are a couple of reasons that the sell-off may slow down with the USD in heavily oversold territory while next week the ECB is fully expected to announce an extension to their pandemic bond-buying program by up to a year - until the middle of 2022 - weakening the Euro and boosting the value of the dollar basket. The ECB meeting and press conference is on Thursday the 10th of December from 12:45 GMT onwards.

US Dollar (DXY) Daily Price Chart (February – December 4, 2020)

What is your view on the US Dollar – bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author via Twitter @nickcawley1.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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