The Fed Chair ignited another frenzy run in the markets on Thursday as the dollar hits a fresh YTD high. Later today, the employment data release would ensure traders have no time to decompress from Thursday’s massive moves.

It’s just what was expected at the start of the week regarding volatility. The US chief central banker incited what would have otherwise been a dull week. Last week was weighty of speculations that the Fed might surprise with a higher rate on the back of a stronger than expected recovery and a rising bond yield. Investors and traders held on to this despite Powell’s snub of the inflationary effect of rising yield at the Congress.

Meanwhile, on Thursday, he reiterated the need to keep the current monetary policy intact amid the current bullish environment and thus dampened investors’ speculative hopes. The equities markets recovered early from the pandemic onslaught and have grown to multiple record highs since December at the expense of the dollar. The Fed believed it’s time to take a breather – allow bonds to run higher thus putting pressure on equities and then the dollar profiting from a risk-off environment together with the current growth.

Despite these moves from the Fed, there is still one more leg of the puzzle that remains unsolved – unemployment. Over 10 million jobless US citizens and a 6.3% unemployment rate is a big worry for the world’s largest central bank. Thus, investors and traders will be keen on Friday’s NFP figures. However, the exact figure is expected to have a short-lived effect on the dollar as the market tends to focus more on the bigger picture ahead of next Month’s Fed meeting.

February’s Nonfarm Payroll is forecast to add fresh 180,000 jobs. This was far better than January’s 49,000 and December’s -227,000. Also, if we consider the fact that an average of 89,000 jobs were lost in December and January, February’s data coming today should better be very good. Below 120k actual release would trigger a devastating pressure on the dollar. On the other hand, over 225k actual should push the dollar higher.

In the long run, however, with the unemployment rate expected to remain at 6.3% and most likely over 9 million still jobless even after today’s data, the market will remain very cautious. There might not be a smooth ride after the NFP spike. Market mood could oscillate or less volatile until the next Fed meeting.

DXY technical analysis

The dollar index has been on a smooth bullish run since the last days of February. The index has now claimed over 2.5% to hit 92 in the early London hours on Friday. However, technically, traders might be concerned about the corrective nature of the resurgence since January. The chart below shows the DXY slightly trading above the roof of the corrective channel below 92.

Dollar Index (DXY) chart (H2)

The corrective rally from January’s 89.15 has completed a double zigzag corrective pattern. A possible bearish reversal zone is stationed at 92.1-92.15 (confluence of a resistance level and 100% Fibonacci projection of W from X). However, to confirm the return of the bears, the dollar index will have to drop back into the channel and break below the wave Y’s trendline (broken purple trendline) down below 91.5. If this happens, traders will look for more bearish traction next week. However, if the current bullish move slightly above the roof of the channel is sustained above 92.15 to 92.5, further rallies will be expected above 93 and into the pre-November prices. The effect of the dollar should be seen across the major FX market.

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