FX

US Dollar tightrope walking daily support

  • US Dollar bears eye a break below daily support.
  • Bulls could be attracted which could open risk towards 105.50 or a 50% mean reversion near 105.75. 

The US dollar fell on Friday despite a surprisingly strong jobs report and fell to test the 104.50s where the price is consolidating in the Tokyo open. Even though the Nonfarm Payrolls data showed that stronger-than-expected hiring reflected the tightness of the labour market, investors faded the US dollar as Fed officials spoke dovish on the outlook.
Average hourly earnings arrived at 0.6%, well above expectations for a 0.3% gain, and the participation rate also declined to 62.1%.

Nevertheless, following a strong move by the US dollar bulls, Chicago Fed President Charles Evans made dovish comments that put an end to the rally in the greenback. The central banker said that the pace of increases is likely to slow and added that the Fed will likely need to raise borrowing costs to a “slightly higher” peak than envisioned in forecasts from September. The comments turned sentiment although, as analysts at ANZ Bank argued, ”the data were a well-timed reminder that the path to lower inflation is going to be hard fought.”

Meanwhile, analysts at TD Securities argued, that the jobs data should help to stem some of the USD’s bleeding, but suggested a reversal is unlikely to materialize. ”We think the USD positioning squeeze is advanced but a reassessment is unlikely to occur until US CPI and the December Fed.”

US Dollar daily chart

As seen, the price is sandwiched between support and resistance following the break below the daily trendline support. 

A break below support is needed to avoid a correction into the prior lows near 105.50 or a 50% mean reversion towards 105.75. Should these areas hold on a retest, there will be prospects of a downside continuation towards 1.0350 and the figure. 
 

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