US Dollar Index regains ground and approaches 99.00

• DXY rebounds to the 99.00 area pos-NFP
• US Non-farm Payrolls missed estimates at 136K.
• Fed’s Chief Powell due to speak later in the session.

Volatility around the Greenback is now picking up pace, driving the US Dollar Index (DXY) back to the 98.90 region after a failed attempt to retake the area above 99.00 the figure.

US Dollar Index now focused on Powell

After a quick move to daily highs in the 99.00 neighbourhood following September’s Payrolls, the index seems to have lost some upside feeling and it is now retreating to the comfort zone in the 98.90/80 band.

The buck has picked up pace despite the US economy added 136K jobs during last month, missing forecasts for 145K jobs. However, the jobless rate dropped to a new low at 3.5% (from 3.7%) and August’s job creation was revised higher to 1.68K (from 130K). On the not-so-bright side, wage inflation pressure – gauged by Average Hourly Earnings – eased from previous months and came in flat on a monthly basis and expanded at an annualized 2.9%.

The somewhat better-than-expected report lent much-needed support to US yields, encouraging the 10-year note to leap to the boundaries of the 1.56% region, some 4 bps higher than earlier lows.

Later in the session, Chief Powell will speak at a ‘Fed Listens’ event, although expectations for comments on monetary policy look flat.

What to look for around USD

The index came under further selling pressure after hitting fresh 2019 highs near 99.70 on Tuesday following renewed recession jitters post-poor prints from the ISM manufacturing/non-manufacturing. In this regard, September’s Payrolls came in on a mixed tone but the lower-than-expected unemployment rate appears to have calmed investors somewhat. On the broader view, the constructive outlook in DXY looks a bit damaged but still in play amidst a divided FOMC vs. a broad-based dovish stance from the rest of the G-10 central banks. Despite evidence that the US economy could be losing some momentum, the labour market remains strong as well as consumer spending, while the recent pick up in inflation adds to the auspicious domestic scenario vs. the generalized slowdown in most of overseas economies. Domestic data in combination with politics and developments from the US-China trade front should be key in determining the next decision on interest rates amidst Powell’s ‘mid-term adjustment’. Looking at the broader picture, the positive view on the Dollar is also well underpinned by its safe haven appeal and the status of ‘global reserve currency’.

US Dollar Index relevant levels

At the moment, the pair is gaining 0.03% at 98.94 and a break above 99.67 (yearly high Oct.1) would aim for 99.89 (monthly high May 11 2017) and then 100.00 (psychological handle). On the other hand, immediate contention aligns at 98.64 (21-day SMA) seconded by 98.26 (55-day SMA) and finally 97.86 (monthly low Sep.13).