Schedule dollar index at intervals of 60 minutes
The dollar rebound on Tuesday put pressure on the euro, which is testing important chart support in the 1.1995 / 1.2000 area.
“If a sustained breakdown occurs, it could mean that today’s session will be important for short-term direction, especially if EURUSD manages to close below the pivotal pivot point of $ 1.20,” said Ned Rumpeltin, head of European currency strategy at TD Securities.
“We think we will need to see the daily close below $ 1.20 to be more confident in the observation that the dollar is trending to strengthen significantly during May.”
Against a basket of currencies, the dollar remained largely unchanged at 91.21, but moved away from a recent two-month low of 90.422. In order to continue the rebound, the DXY index needs to overcome the resistance at 91.425.
Rumpeltin noted that over the past 10 years, the dollar has grown on average against each of its G10 counterparts in May.
The jump was driven in part by comments from US Treasury Secretary Janet Yellen that a rate hike may be needed to stem the overheating of the economy.
Yellen later downplayed the importance of her words, but even the slightest mention of US tightening has a huge impact on markets that have become so dependent on monetary stimulus.
The effect was evident for large-cap tech stocks, which suffered huge losses overnight, causing the Nasdaq to plummet 1.88%.
So far, Federal Reserve Chairman Jerome Powell has argued that the job market is still far from what it takes to start talking about cutting asset purchases.
This position could be tested on Friday if the April employment report turns out to be as strong as some suggest. The average projection is 978,000 people, but some estimates put it at even 2.1 million.
Three more Fed officials will speak later Wednesday, providing an opportunity for further signals on the direction of monetary policy by the markets.
Westpac analysts pointed out that the very anticipation of huge new job creation is a factor that is helping the dollar to form the basis for further strengthening.
“The last word will go to the more influential Fed dove core, but that will not stop more hard-minded FRB presidents in the regions from making differing comments on the QE cut,” they said in a note, adding that the dollar’s uptrend could reach 92 if there will be jobs that exceed the highest expectations.
They added, however, that reviving the economy in Europe and accelerating the pace of vaccinations could limit the dollar’s rise.
Trading in Asia was limited as holidays continued in Japan and China, but the New Zealand dollar surged to $ 0.7170 as local employment data beat expectations.
The dollar remained stable against the yen at 109.31 and again needs to break through the 109.61 resistance to stimulate more speculative buying.
One of the obstacles for the dollar is the US trade deficit, which rose to a record $ 74.4 billion in March.
“This is a medium-term pressure on the dollar as the US will become increasingly dependent on long-term foreign investment to fund its current account deficit,” said Kim Mandy, senior economist and currency strategist at CBA.
“As a result, we believe that the recent downtrend in the dollar will continue to develop.”