The Dollar Index (DXY) is holding steady at a two-year low of the key non-agricultural wage and salary numbers released at 13:30 GMT. It is trading at 90.70, which is a few points above yesterday’s low of 90.50.
Dollar index was in free fall
Preview of Nonfarm payrolls
The month of November was a relatively tough month for the US economy, as the latest economic figures show. The number of Covid 19 cases in the country continued to rise as states began to introduce new suspensions.
This week the data showed that the manufacturing PMI rose to 56.7 as the number of order flows continued to increase. Yesterday, however, data from Markit showed that the PMI in services fell from 56.6 in October to 55.9 in November.
As a result, economists believe that job growth in November was lower than in the previous month. The average estimate of the non-agricultural wage bill is that the economy created more than 469,000 new jobs in November, up from 638,000 in October. Although this is the fifth consecutive month in which new jobs have been created, millions of people are still out of work in the economy.
They also believe that the unemployment rate (U3) dropped from 6.9% in October to 6.8% in November. Before the pandemic, this rate was at a multi-year low of 3.9%. The U6 unemployment rate, which includes part-time workers, is expected to remain above 10%.
Above all, economists expect wage growth to fall from 4.5% to 4.3% in November.
Dollar under pressure
The NFP data comes at a time when the US dollar index has come under pressure. After peaking at 103 in March, the index has fallen by more than 11%. It has fallen against most currencies of developing and emerging countries.
Foreign exchange investors attribute the situation to several factors. First, risk appetite has increased as the world prepares for a vaccine against Covid. Second, there is a possibility that the imminent Biden victory will lead to an increase in deficit spending.
Third, and most importantly, the Fed’s decision to implement an unlimited quantitative easing program has led to a lack of confidence in the dollar.
Indeed, as I wrote yesterday, analysts from banks such as JP Morgan, Morgan Stanley and Bank of America believe that the weakness of the dollar will continue.
Technical outlook for the US Dollar Index
Dollar Index Table
On the daily chart we can see that the Dollar Index has been in free fall lately. It is trading at a multi-year low of $90.70, and this week it moved below the important support level of $91.71. The downward trend is supported by the descending trend line in yellow, moving averages and oscillators. Therefore, I think there is a high probability that bears will push it below the psychological barrier of $90.