US Dollar Blazes Higher on Solid Data as Geopolitics Play Out. Where to for USD?

US Dollar, DXY Index, USD, NFP, Fed, BoJ, USD/JPY, Nikkei 225, China – Talking Points

• US Dollar resumed strengthening today after Friday’s massive rally
• Risk assets appear vulnerable as Fed rate hike expectations re-accelerate
• If the US economy is booming, will the Fed act and what will it mean for USD?

The US Dollar continues to fight back after a blistering jobs report on Friday showed that the Fed might have more heavy lifting ahead to rein in inflationary pressures.

The ramifications of the massive beat of US total nonfarm payrolls (NFP) data continued to play out through the Asian session on Monday.

517k jobs were added in January according to the US Bureau of Labour Statistics, way above the 188k anticipated and last month’s read of 223k was also revised up to 260k. This put the unemployment rate at 3.4%, below the 3.6% forecast and 3.5% previously.

Treasury yields are higher, adding to large gains seen at the end of last week with the 2-year part of the curve seeing a generous uptick as it traded back above 4.35% after visiting 4.04% last week.

The Aussie and Kiwi Dollars have been hardest hit in the currency space as high beta risk assets tumble on the prospect of tighter monetary policy from the Fed.

USD/JPY is notably higher after the Nikkei newspaper reported that the Bank of Japan (BOJ) Deputy Governor Masayoshi Amamiya has been sounded out to take the top job when Haruhiko Kuroda steps down in April.

He is seen as maintaining the current relatively loose monetary policy. The Nikkei 225 equity index bucked the broader weakness in stock markets, trading in the green. Hong Kong’s Hang Seng index was down over 2.3% at one stage. Futures are pointing to a soft start to the Wall Street cash session.

The backdrop to market gyrations today is engulfed by the Chinese balloon saga that has Sino-US relations turning icy once more. The cancellation of Secretary of State Antony Blinken’s visit to Beijing might disrupt China’s smooth economic transition out of the pandemic era.

Gold is languishing near Friday’s low under US$ 1,870 an ounce. Similarly, crude oil is struggling to make headway with the WTI futures contract trading near US$ 73.50 bbl while the Brent contract is around US$ 80 bbl.

Looking ahead, there will be a number of speakers from the Bank of England today.

The full economic calendar can be viewed here.

DXY (USD) INDEX TECHNICAL ANALYSIS

The DXY Index has recovered from a seven-month low but remains within a descending trend channel.

Resistance could be at the breakpoint 103.42 or further up and the prior peaks of 105.63, 105.82, 107.20 and 107.99.

On the downside, support may lie at the breakpoint of 101.30 or down at the previous lows of 100.82, 9957 and 99.42.

Chart created in TradingView

— Written by Daniel McCarthy, Strategist for DailyFX.com

Please contact Daniel via @DanMcCathyFX on Twitter