Weak U.S. data and bank jitters got the dollar bears excited earlier this week!
In case you missed it, the U.S. dollar lost most of its intraweek gains after a report showed U.S. layoffs growing to their highest levels since 2000 while the rate of job quitters fell to a two-year low.
Meanwhile, U.S. factory orders also missed their estimates. Not good when traders are already worried about the U.S. debt ceiling and the Fed raising its interest rates despite signs of a growth slowdown.
The U.S. dollar index (DXY), which hit 102.40 this week, is now trading closer to 101.75.
U.S. Dollar Index (DXY): 1-hour
U.S. Dollar Index 1-Hour Forex Charts by TV
Has DXY fallen down enough to attract bargain hunters?
On a technical basis, the index is now sitting on an ascending channel resistance that’s been around since late April. Not only that, but its current levels also line up with an inflection point seen in mid-April.
What makes a buy setup more attractive is that Stochastic is chillin’ in the “oversold” territory in the 1-hour time frame almost right after the 100 SMA crossed above the slower 200 simple moving average.HOWEVER…
We can’t discount the fundamental concerns that might drag the dollar lower.
We know from past debt ceiling discussions that USD tends to weaken at least until a deal is in sight. Why would investors buy the dollar when there’s a chance that the U.S. won’t meet its debt obligations?
Meanwhile, a Fed rate hike – which is a likely scenario according to our FOMC Statement Event Guide – might weaken growth and probably accelerate job losses.
So, unless the Fed reassures the markets that another rate won’t lead to a “hard landing,” or today’s ADP and ISM reports point to a strong labor market, then USD could continue to weaken.
For now, I’m looking to sell DXY as soon as the index convincingly breaks below its channel support. The 101.30 – 101.45 area looks good for initial intraday targets though DXY could probably drop to the 101.10 low if there’s enough momentum.
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