US Dollar Forecast: DXY Range-Bound as ADP Report Dampens Rate Cut Bets

U.S. Dollar Index Edges Higher in Choppy Trade Ahead of Key Jobs Data

The U.S. Dollar Index is edging higher shortly before the mid-session on Wednesday. So far it’s been a choppy week with the market posting a high at 98.861 on Monday and a low at 98.161 on Tuesday. Despite the wicked swing, the index is still up for the week.

At 16:22 GMT, DXY is trading 98.643, up 0.048 or +0.05%.

Technical Setup: Dollar Hovers Above Long-Term Support Zone

The index has been steadily climbing since reaching a multi-month low at 97.749 on December 24. It is currently hovering above a long-term support zone at 98.307 to 97.814.

The new range is 100.395 to 97.749. Its 50% to 61.8% target zone is 99.072 to 99.384. In front of this zone is the 200-day moving average at 98.900 and the 50-day moving average at 99.077.

The near-term direction is likely to be determined by trader reaction to the 200-day and 50-day moving averages.

Bulls Need Break Above 99.077 to Extend Rally

Bullish traders need to see a close over the 50-day moving average at 99.077. Although it could still face a headwind at 99.384, the daily chart is wide open over this level. Bullish labor market data could be the catalyst that launches a rally through this level. Traders should monitor the odds of a Fed rate cut to determine if the rally will extend or weaken.

Venezuela Concerns Fade as Focus Shifts to NFP Report

Today’s price action suggests traders have moved on from the U.S. intervention in Venezuela and the arrest of President Nicolas Maduro and are preparing for Friday’s Non-Farm Payrolls report.

As far as Venezuela is concerned, it appears dollar traders are convinced that there won’t be a U.S. military presence in Venezuela and that the country will run itself. Putting boots on the ground and running a full-scale military operation in Venezuela would’ve tanked the dollar just like it did in reaction to the Iraq and Afghanistan wars in 2002-2008, according to Thierry Wizman, global forex and rates strategist at Macquarie Group.

ADP Report Shows Slower Jobs Growth, Lowers Rate Cut Expectations

In economic news released earlier today, private sector job creation turned positive in December though slower than the forecast, payrolls processing firm ADP reported Wednesday. Although the news wasn’t an earthshattering event, it was enough to lower the chances of an aggressive Fed rate cut. This helped underpin the greenback.

Perhaps helping to cap gains are concerns about whether Trump’s administration will be forced to refund more than $133.5 billion in tariffs to importers. The dollar could get hit hard if the U.S. Supreme Court declares his duties unlawful.

Market Outlook: Range-Bound Trading Until Fed Policy Clarity Emerges

Looking ahead, the Dollar Index is rangebound, while traders await key labor market data. Capping gains are the 200-day and 50-day moving averages. Support is a long-term retracement zone. Traders seem to be content with holding the market in a range until they get more clarity on Fed policy.

More Information in our Economic Calendar.