DXY Falls from 94.5 rejection | USD Update for Wk1 Sep for TVC:DXY by SteadyTradeAI

The US Dollar Index ( DXY ) is still pulling back following a new yearly high reached in the middle of the month. But is this just a pullback or the beginning of a broader decline? It is hard to say yet at this juncture. The trend since the May low has certainly been wobbly, and at current levels the DXY is no better off than it was two months ago, but that doesn’t mean we won’t see higher levels. There is a trend-line test taking shape right now, but the trend-line isn’t the most robust given its limited connecting points. If it breaks, it won’t be a significant development. However, the deeper the decline continues to unfold the more likely it is that we are seeing a larger reversal unfold and not a corrective move for the USD that will lead to new yearly highs. Price action leaves the outlook in limbo, with little to lean on with conviction. For now, it appears prudent to tread with caution until we have more price action to work with. If we see a sharp turn higher soon, that could do the trick for putting the ball back in the buyers’ court. On the flip-side, a continued slide may set up a countertrend move for would-be sellers to step into to take advantage of further weakness.

The focus is squarely on this Friday’s Non-farm Payrolls for indication of just how quickly the Fed might be looking to start tapering asset purchases. As Jerome Powell said last Friday, the economy has met the marker for ‘significant further progress’ in terms of inflation ; but in terms of employment, the economy isn’t quite there yet according to the head of the FOMC, and this puts even more focus on jobs numbers. This Friday’s NFP report is the last such report that the Fed will get to see before the September rate decision, which is a quarterly rate decision as the bank will also be furnishing updated guidance and projections. The wide thought is that if the bank is, in fact, looking to taper asset purchases by the end of 2021, that September rate decision will likely be important for the FOMC telling us when and how they’re planning on doing it. If Friday’s jobs report falls flat, there’s even more motive for the Fed to stay loose and passive, kicking the can on taper into 2022 and this could lead to some aggressive USD-weakness. At this point, the US Dollar is holding on to a short-term bearish trend while the longer-term trend does retain some element of bullishness, looking back to the June/July lows that remain about 3% away.

The current USD setup is showing resistance at a prior spot of support, taken from around 92.80-92.90. A bit lower is another big spot of resistance and this is the same spot that caught the mid-August swing-low, and that’s around 92.45 with a couple of different Fibonacci levels.

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