US Dollar Forecast: DXY Outlook Turns Firmer After Warsh Nomination

Dollar Edges Higher for Fourth Straight Session

The U.S. Dollar is edging higher against a basket of major currencies on Monday, putting it in a position to close higher for a fourth straight session.

At 16:00 GMT, DXY is trading 97.664, up 0.517 or +0.53%.

The trend is down according to the daily swing chart. The current range is 99.492 to 95.551. The first upside target is its retracement zone at 97.522 to 97.987. The high of today’s session is 97.546.

With the main trend down, we could see some selling on the first test of this zone as traders attempt to form a support base. Even if buyers can overcome 97.987, they’ll still be facing headwinds at the 50-day moving average at 98.534 and the 200-day moving average at 98.618.

The major support is a pair of main bottoms at 95.137 and 94.629.

Can the DXY Build a Solid Support Base?

The DXY can rally, but it’s going to take some time to build a support base above the two main bottoms. The support base is going to have to be solid enough to shift momentum to the upside and with enough power to overtake the retracement zone at 97.522 to 97.987.

The entire bearish narrative will shift to the upside if buyers can overcome the moving averages at 98.536 to 98.618. This area could be the launching pad for an acceleration into the resistance created by the two main tops at 99.492 and 100.395.

Warsh Nomination Lifts Dollar as Commodities Fall

Fundamentally, investors continued to assess the potential impact the newly nominated Chair Kevin Warsh may have on Federal Reserve policy. The dollar also garnered some support from falling commodity prices like gold, silver and crude oil.

According to CNBC, “Analysts assume Warsh will be less likely to press for all-out rapid rate cuts than some other candidates who had been in the running, though he has sounded more dovish than current chair Jerome Powell.”

“Kevin Warsh is, on the surface, the most dollar-bullish option that Trump could have picked,” said Mohammad Al-Saraf, FX and fixed income associate at Danske Bank. “I wouldn’t say the political risk premium in the dollar is gone but at least some of the near-term risk has been alleviated.”

Key Jobs Data Coming This Week

Despite the dollar’s strength on the back of Warsh’s nomination, U.S. Treasury yields were little changed on Monday. Later in the week, dollar traders will get to see a few economic reports including the latest Job Opening and Labor Turnover Survey (JOLTS) and ADP employment survey. The reports are expected to give investors key insights in the labor market.

This is an important report because last week, the Fed suggested its focus may be shifting away from labor and toward inflation.

More Information in our Economic Calendar.