U.S Dollar Maintains Rage, Jobs Report Under Spotlight

In London on Tuesday morning, safe-haven currency was fired up but fell under a 1-year high amid speculation over when the Federal Reserve will begin asset tapering and rising interest rates.

At the time of writing, the U.S. Dollar Index, which tracks the greenback against a basket of other currencies, was up 0.24% to trade at above 94.

A potential resistance area would be around 94.7, which is the low validated in March 2020.

Whether a rally reconvenes sooner or a little later, it would show a change in behavior from what it was before, whether a consolidation period occurs first or later.

If longs are looking for a trend continuation, they may want to enter at the support level. Those seeking to exploit further weakness might be wise to wait until support breaks before taking any action.

Despite Chinese markets being closed for the holiday, USD/CNY was steady at 6.4467.

During the previous week, the dollar reached its highest level since September 2020, hitting 94.504. Investors are pricing in the Fed’s asset tapering, which could begin as early as November 2021 and further rate hikes in 2022. It had advanced as much as 2.8% since Sep. 3.

DXY bulls were also boosted by concerns about global stagflation and the U.S. debt ceiling debate.

Dollars are priced with a lot of bad news from abroad. As markets move into the weeks ahead, we will need to figure out how much the risk premium has already been factored in versus how the factors play out in practice.

We have a favorable view of the dollar in the near term, but are looking to diversify our risk exposure.

On Friday, the Bureau of Labor Statistics will release a report that includes nonfarm payrolls.

There is a strong expectation that job growth will continue. In addition, when the economy improves enough, the Fed is also expected to make good on its plan to commence asset tapering in 2021.