DOLLAR WEAKENS ON FED MOVE

The US Dollar (USD) tumbled on Thursday, and the DXY index declined to 106.20, driven by dovish bets on the Federal Reserve (Fed) and falling US bond yields following Wednesday’s decision and Chair Powell’s tone.  All eyes are now on the Nonfarm Payrolls (NFP) report from October on Friday, which could set the tone of the USD in the short term and extend its losses.

The Federal Reserve (Fed) and Chair Jerome Powell welcomed the latest data, which showed that the United States economy remains strong, and noted that the job creation pace and inflation are decelerating. In addition, Powell hinted that the bank has tightened significantly and that in the next decisions, he will consider the tighter financial conditions and the cumulative effects of monetary policy.

• The DXY index plunged below the 20-day SMA, toward 106.20, down by 0.40%.
• Ahead of October NFPs on Friday, the US reported soft labour market data. 
• The Unit Labour Costs from Q3 declined by 0.8% QoQ, while markets expected a 0.7% expansion.
• In addition, the US Department of Labor revealed that the Initial Jobless Claims from the week ending October 28 came in higher than expected. Folks filing for unemployment benefits came in at 217,000, higher than the consensus of 210,000 and an increase in relation to its last reading of 212,000.
• Elsewhere, US Treasury yields are sharply falling. The 2-year rate fell to 4.98%, while the longer-term 5 and 10-year rates retreated toward 4.63% and 4.67%, hindering the US Dollar from finding demand.
• According to the CME FedWatch Tool, the odds of a 25-basis-point hike in December are still low, around 20%, adding further pressure to the USD.

The technical analysis of the daily chart suggests a neutral to bearish stance for the DXY Index as the bears work on staging a recovery and exerting their presence. The Relative Strength Index (RSI) points southward below its midline, while the Moving Average Convergence (MACD) histogram displays increasing red bars. Furthermore, the index is below the 20-day Simple Moving Average (SMA), which could pave the way for additional downward movements in the short term.

That being said, the DXY holds above the 100 and 200-day SMAs, pointing toward the prevailing strength of the bulls in the larger context.