The US Dollar Index (USDX), an index which measures the valuation of the US dollar against a basket of currencies like the euro, has been stuck in a trading range after it rebounded from its low of 75.631 last November 4. It peaked at 81.444 on November 30 but it has since moved sideways.
Yesterday, however, the dollar jumped by 1.0%, its best percentage gain in three weeks. As you can see from the index’s 4-hour chart, it jumped 79.50 to settle just above 80.20. Presently, there are very heavy resistances above the index’s current level. However, a potential pennant pattern could now be forming and a breakout from it could send the index towards its November peak. But if a breakout does not occur, the dollar could weaken and fall back to 79.00. An overbought condition, as indicated by the stochastics, also makes this scenario possible.
Fundamentally, the surprise jump in the US’s private sector jobs and solid growth in its service sector helped buoy the USD. Private payrolls firm ADP that 297,000 new jobs were created in December, almost tripling the market’s forecast of only 101,000. Confidence and dollar buying got another boost when the Institute for Supply Management (ISM) also posted an more-than-projected improvement in its index. The index rose to 57.1 in December from 55.0 in the previous month which is over the 55.6 consensus.
To end the week, the mother of all economic report, the US Non-farm Payrolls (NFP) report will be on deck. About 136,000 new jobs is expected to have been created in December from only 39,000 in November. But with the huge positive gap in the ADP’s figure, an upside in the actual employment figures could happen. Unemployment rate for the same period is also expected to improve to 9.7% from 9.8%. This would definitely enhance the market’s optimism and push both the equities markets and the dollar higher. Let’s hope this outlook does not get whacked like what the Sea Shepherd activists did to a Japanese whaling ship recently.