The dollar fought back its uptrend

Friday's labour market data provided the dollar with a strong upward momentum. This bullish signal needs confirmation or refutation, and we are likely to get one or the other by the end of Wednesday.

The dollar index started June with a test of the 200-day moving average. It managed to push back from it after another batch of bullish US labour market data, which showed a 272k increase in employment and accelerated wage growth to 4.1% y/y.

DXY, having opened the week with a gap up on the results of the European Parliament elections and the subsequent announcement of a snap election for the French National Assembly, is trading above its 50-day moving average.

The dollar's 1.3% rise since Friday has brought it back into the upward range that has existed since the last days of last year. The brief fall out of the range at the beginning of the month was false, as a failure to fall towards 104 (the previous local low) was met with buying rather than intensified selling.

Wednesday's consumer inflation data and the Fed's assessment of the situation have enough potential to bring the dollar back down if it turns out to be significantly softer than expected. Nevertheless, since the end of last week, the main scenario has looked like the dollar is further strengthening against a basket of major currencies.

In this bullish scenario, the dollar index is heading towards the upper boundary of an upward range near 108.7 by the end of the month, which could be the highest since November 2022. Fundamental support for such a scenario would be a batch of data confirming an acceleration in US consumer inflation. Even more positive reactions for the dollar may come in case of signals from the Fed that the committee may be comfortable cutting the rate once before the end of the year or not cutting it at all. 

By the FxPro Analyst Team