US Dollar Index (DXY) News: Resistance at 103.480 Triggers Pullback After 3-Day Rally

Dollar Index Eases After Three-Day Rally

The U.S. Dollar Index (DXY) edged lower on Friday, slipping 0.1% to 103.19 after three consecutive days of gains. The index is facing resistance at the 103.480 level, a key pivot where buying pressure stalled in the previous session. This pullback follows a dip in 10-year Treasury yields as traders assess the latest U.S. labor market data.

Impact of Labor Market Data on Dollar and Yields

The U.S. dollar remains close to a one-week high against major currencies, supported by the sharpest drop in U.S. jobless claims in nearly a year, which has eased concerns about an economic downturn. Thursday’s stronger-than-expected employment data has reduced the likelihood of a 50-basis point rate cut by the Federal Reserve in September, now seen as a 54% probability, down from 69%. The odds for a smaller 25-basis point cut have increased in response.

Treasury yields have reacted accordingly, with the 10-year yield down 6 basis points to 3.938% and the 2-year yield easing by 2 basis points to 4.024%. This reflects the market’s reassessment of the Fed’s future rate path based on the resilience of the labor market.

Global Currency Movements and Risk Sentiment

The U.S. dollar held steady against the Japanese yen after a three-day rebound, with USD/JPY trading at 147.175, marking a 0.5% weekly gain. The yen, along with the Swiss franc, remains near one-week lows as global risk sentiment improves, evidenced by gains in Asian and European equity markets. In contrast, risk-sensitive currencies like the Australian dollar and British pound edged higher.

Despite the yen’s recent strength, driven by the unwinding of short positions following a surprise rate hike by the Bank of Japan, market participants remain cautious. Commodity Futures Trading Commission data due later today may provide further insights into the extent of yen buying that has taken place.

Market Forecast

The U.S. Dollar Index’s recent pullback suggests potential consolidation in the near term, particularly as it struggles to break through the 103.480 resistance level. However, with U.S. Treasury yields stabilizing and labor market data supporting a less aggressive Fed rate cut, the dollar may find renewed support. Traders should watch upcoming inflation data, particularly Tuesday’s core producer price index, which could influence the Fed’s policy and the dollar’s direction. For now, a cautious bullish outlook is warranted, contingent on yields maintaining current levels.

Technical Analysis

The U.S. Dollar Index (DXY) is facing resistance at 103.480. This level stopped the three-day rally. Given the short-term rally of 102.160 to 103.546, the next potential downside target is its pivot at 102.853.

The pivot at 103.480 is also a trigger point for an upside breakout. A sustained move over this level could create the momentum needed to challenge the 200-day moving average at 104.205.