The Dollar Forecast: Strong Jobs Numbers Point To Major Rebound

The Dollar: I Just Can’t See It Moving Lower

The Dollar Index has been moving lower over the past few weeks despite my best guesstimates. The combined power of weak economic data, the pandemic, the slow reopening, the FOMC outlook, and the riots have combined to undermine what should be a very bullish trade. I mean, this is the U.S. dollar we’re talking about and during a global crisis, if there is one currency the world can count on as safe it is this one. And yet the dollar kept moving lower, perhaps because of bets on a global reopening but that’s just conjecture.

But all that changed just last Friday. The May NFP report wasn’t so much of a blow out as the most shockingly good surprise in labor data the world has ever seen. Instead of a minus 1.75 million-ish figure the U.S. economy created more than 2.0 million jobs. When I say created what I mean is the net gain in jobs for the month, offset by any lost jobs, came in at over 2.0 million and I can’t say I am surprise. We know the economy is reopening, we know there is going to be a surge in job creation as people are recalled and businesses reopen, and that doesn’t count pandemically inspired hiring at places like Amazon and other high-demand “essential” businesses.

The surprise was how soon it came. Even with the so-called misclassification error that shaved 300 bps off the unemployment rate this data shows a massive rebound in the economy that points to solid GDP growth. Growth that will impact the GDP figures as soon as this quarter. Growth that will help the FOMC back off of their stimulus stance. Growth that will help Congress back off of its stimulus stance. Growth that will support and lift the dollar.

The Technical Outlook: The DXY May Be At A Bottom

The Dollar Index may be at a bottom but it is still too soon to tell. The index created a bullish candle on last week’s NFP news but so far the gains have been capped by resistance. At this point, it looks like a bearish continuation may be forming but again, it’s a little soon to say. What traders need to watch is the $97.15 resistance level for 1) a confirmation of resistance or 2) a break above resistance. If resistance is broken traders can start looking for a more vigorous rebound, if not then a move down to the $95.50 support line is most likely.