Daily Market Recap – DXY Dollar remains at equilibrium while waiting for NFP

The DXY has been trying to rebound since last Wednesday after falling to a 5-month low below 90 points last week. The greenback has managed to climb back towards the symbolic 90-point mark below dipping again, weakened by weak macroeconomic indicators and a decline in investors' expectations of a Fed rate hike.

Indeed, the probability of a Fed rate hike by the end of the year has dropped from 15% at the end of April to 6% last week following mixed economic data, as evidenced by the Citigroup Economic Surprise Index, which recently fell close to 0 for the first time since the start of the pandemic.

The upcoming NFP report released on Friday will be crucial for the dollar, as the recovery of the job market is the keystone of the Fed's monetary policy. The sooner the job market returns to pre-crisis levels, the sooner the Federal Reserve will begin to normalize monetary policy. Consensus is currently calling for 650,000 jobs created in May, 600,000 of which were in the private sector.

As we await the NFP on Friday, the DXY dollar is likely to remain stable unless the ISM manufacturing and non-manufacturing indexes, the flash PMI revision, and the Eurozone industrial production and retail sales differ too much from the consensus.

In terms of technical analysis, the DXY's exit from its descending wedge at the top without significant bullish momentum calls for caution. The DXY tried to extend its gains on Friday after the release of the PCE core inflation, but the dollar lost its gains at the end of the day.

It will be best to wait for a daily close above the 20-day moving average, currently at 90.27 points, to bank on a dollar rebound. If so, the outlook would become bullish in the short term to the May high at 91.41 points, then eventually the April high at 93.47 points.

(Chart Source: Tradingview 31.05.2021)

A pullback below the January low at about 89.16 points would invalidate the bullish outlook and set the stage for a continuation of the underlying downtrend.

Disclaimer: This material has been created for information purposes only. All views expressed in this document are my own and do not necessarily represent the opinions of any entity.