The U.S. dollar index fell back after the better-than-expected non-agricultural data, and the ISM services PMI, which was significantly lower than expected, exacerbated the short-term decline. Technically, the U.S. dollar index’s fall from the upper track of the daily Tubuling band has the risk of pointing to the lower track, but it has not yet crushed the hope that the US dollar index will build a bottom near 102.50-103.
The ISM services PMI was significantly lower than expected, and the U.S. dollar index continued to decline after non-farm payrolls
The survey data released by the Institute for Supply Management (ISM) in the United States showed that the PMI of the service industry in December dropped sharply from the previous value of 56.5 to 49.6, which was significantly lower than the expected value of 55 and was the lowest level after the impact of the epidemic in 2020. The sub-item data showed that the price index fell from 70 to 67.6, the employment index fell from 51.5 to 49.8, and the new orders index dropped the most significantly – from 56 to 45.2.
Since the service industry is a more important sector than manufacturing in the US, the ISM services PMI will raise recession fears, thereby limiting the Fed’s room for future rate hikes and the time it can maintain a hawkish stance. After the release of the data, the U.S. dollar index extended its plunge after the non-agricultural data and is now at 104.50.
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The non-agricultural data released not long ago by the ISM services PMI showed that non-agricultural employment in the United States increased by 223,000 in December, the lowest since November 2021, but the result was stronger than market expectations of 220,000. Meanwhile, the December unemployment rate was also surprisingly better than expected, coming in at 3.5% versus expectations for 3.7%.
Although non-agricultural employment growth and the unemployment rate both performed better than expected, the market saw evidence of cooling inflation-because the annual rate of hourly wages in December was 4.6%, which was 5% lower than market expectations. Therefore, after the release of the non-agricultural data, the US dollar index began to fall, and the subsequent ISM service industry PMI made the short-term trend worse.
But in any case, the Fed’s still hawkish stance has been consolidated again this week. This may not be changed by some weak economic data in the short term, so the rebound of the US dollar index is still worth looking forward to.
The minutes of the December meeting released by the Federal Reserve in the early hours of this Thursday showed that Fed officials did not easily believe that inflation had peaked, and believed that “more evidence is needed to be sure that inflation is continuing to decline.” And unlike market expectations for a possible rate cut in late 2023, the minutes showed that “no participant expected a rate cut in 2023 to be appropriate.”
The speeches of many Fed officials this week are hawkish. For example, Minneapolis Fed President Kashkari believes that it is appropriate to continue raising interest rates in at least the next few meetings. The Fed’s terminal interest rate may reach 5.4%. St. Louis Fed President Bullard said that interest rates are still slightly below a sufficiently restrictive level, and inflation may fall slower than market expectations.
Technical analysis of US dollar index trend
The daily chart shows that the US dollar index failed to break through the first-line resistance of 105.40, which is near the low point of the shock in November last year and the upper track of the daily Bollinger Band. Today’s high and fall indicates that the U.S. dollar index may still be in the stage of oscillating and bottoming out. The short-term lower support focuses on the 20-day moving average of 104.30. After a break, it may further point to the 103.80-104 area, and then focus on the lower track of the Bollinger Band at 103.50. And if it rebounds, the upper resistance will focus on 104.70, 105, and 105.40.
In general, as long as the support area (102.50-103) formed by the middle track of the long-term channel and the upward trend line since May 2021 (102.50-103) is maintained, today’s sharp rise and fall has not changed the prospect that the US dollar index is close to the bottom or oscillating and bottoming .
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