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  • Strong data from the U.S. lift the DXY above 95.
  • European currencies suffer heavy losses against the buck on Thursday.
  • Attention shifts to tomorrow’s nonfarm payrolls report.

Boosted by the sharp fall witnessed in the EUR/USD and the GBP/USD pairs on Thursday, the US Dollar Index, which tracks the greenback against a basket of six major currencies, broke above the 95 mark to refresh its highest level since July 20 at 95.18. As of writing, the index is up 0.5% on the day at 95.13.

Although the BoE announced the expected 25 bps rate hike on Thursday, Governor Carney sounded pretty cautious regarding further rate hikes and triggered a pound sell-off during mid-day. Draghi’s remarks in the ECB’s last press conference and now Carney’s dovish tone reminded investors that the dollar is likely to remain strong against its European counterparts amid the divergence monetary policies.

In the meantime, today’s data showed that the initial weekly jobless claims stayed near the lowest level in more than 40 years while the ISM NY’s Business Conditions Index showed that the business activity in both the manufacturing and the non-manufacturing sectors in the NY region expanded at a very robust pace with the headline number improving to 75 in July from 55 in June. Today’s jobless claims data and Wednesday’s strong private employment growth figures both point to a healthy labor market in the U.S., which could be confirmed in tomorrow’s nonfarm payroll report. However, investors will be paying close attention to wage growth numbers and any signs of negative impacts from Trump administration’s trade policy.

“Given the recent selloff in Treasuries, we believe risks are skewed toward a larger bull steepener in the event of a weaker report. Wages will be the key focus, with a weaker wage print likely allowing Treasuries to rally toward the middle of their recent range. We nevertheless expect any curve steepening to be transitory, with ongoing expectations for Fed rate hikes likely to continue weighing on the curve,” TD Securities analysts wrote in a recently published report.

Technical outlook

With a daily close above 95, the index could target 95.65 (Jul. 19 high) ahead of 96.50 (Jul. 5, 2017, high) and   97 (psychological level/Jun. 5, 2017, high). On the downside, supports are located at 95 (psychological level), 94.50 (50-DMA) and 94.10 (Jul. 26 low).