The US Dollar (USD) experienced a significant rally following the release of the surprisingly strong Nonfarm Payrolls (NFP) report, which showed a substantial increase of 272,000 jobs in May, exceeding the highest economist estimate of 258,000. This unexpected surge in job growth has dampened expectations of a Fed rate cut in September and raised questions about the possibility of any rate cuts in 2024.
Market Movers: Repricing Expectations Post-NFP
The release of the May Employment Report at 12:30 GMT revealed:
- Nonfarm Payrolls increased by 272,000, significantly surpassing expectations and exceeding the revised figure of 165,000 for April.
- Monthly Average Hourly Earnings rose to 0.4% in May, exceeding the 0.2% increase in the previous month.
- Yearly Average Hourly Earnings climbed to 4.1%, surpassing the 3.9% forecast.
- The Unemployment Rate increased slightly to 4% from 3.9%.
The strong NFP data led to a sharp sell-off in European equities, while US equities struggled to find direction. The CME Fedwatch Tool indicated a decrease in the probability of a September rate cut, and the benchmark 10-year US Treasury Note yield jumped to 4.41%.
Technical Analysis: USD Index Flirts with 104.00 Support
The US Dollar Index (DXY) is hovering near the 104.00 level, which has seen strong buying interest in recent days. However, the sustainability of this support remains uncertain, especially if the NFP report continues to influence market sentiment.
On the upside, the DXY faces resistance at the confluence of the 200-day and 100-day Simple Moving Averages (SMAs) around 104.44. Additional resistance is located near 104.60 and the recent peak of 105.08, coinciding with the 55-day SMA.
A break below 104.00 could trigger further declines towards 103.50 and 103.00, especially given that the Relative Strength Index (RSI) is not yet oversold.