Post-NFP Analysis and Forecast - What next for DXY and EURUSD?

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The US added 559,000 new jobs in May. The outcome was good but way below the market’s forecasts of 650k. CAD job data also same worse at -23.5k as more than expected jobs were lost in May. 

The market was disappointed with another job data miss in the US. Today’s 559k NFP meant that the US job market has fallen behind expectations for two consecutive months. Investors expected April and May job data that are as impressive as February’s when actual NFP doubled forecasts and April’s release that beat estimates by 40%. Overall, there is still a sign of recovery but the Fed might point to the recent job data as not enough to consider tapering at an earlier time than anticipated. Further dovish comments from Fed FOMC members will nail the dollar index beneath the 89.5 support.

Worse NFP forces broad dollar weakness

Few hours after the report, the dollar plunged all the pre-NFP rallies a few hours after the actual data came out. The greenback is now close to ending the week where it started after an impressive move. The broad weakness can be seen all across the major FX. After shedding over 1.2% down to $1.2, the Euro quickly surged above 1.218 to recover half of the decline. Sterling also took advantage of the weak dollar to complement its recent strength as the currency glide close to retesting the 1.42 psychological level. Gold builds on the 1855 support to resume the long-term bullish trend as the treasury yield plummets again. The yellow metal is close to retesting 1900. S&P 500 prepares the ground for a fresh record high with 4232 and 4247 being the next barriers. 

What next for the dollar – DXY technical outlook?

In the pre-NFP report, we reckoned that the rally from 89.5 was corrective and not strong enough for a higher corrective rally up to 91 and 91.5 unless today’s NFP beat estimates. However, a disappointing NFP figure could force the dollar to continue the long-term bearish trend below 89.5. The decline of the first two hours was a big blow to the bulls who might have lost some confidence knowing now that the bear orders are not off the table. Unless the Fed decides to cut down its asset purchases or announces a hawkish rate forecast, the dollar looks on the way for more sell-offs.

As the chart above implicates, we could see a minor retracement to 90.25 from prices between the current level and 89.88. If the pullback rally is corrective, then the next decline should take the dollar index below 89.5 down to 89.

EURUSD technical outlook

The European currencies – Euro and Sterling- have outperformed many of their peers this quarter. With a broadly weak dollar, these currencies should advance further.

EURUSD bull was supported again at the 1.21 psychological level after a decline in the last 19 days. The decline completed a double zigzag pattern which indicates that the bulls could regain their lead. The surge above 1.218 starts a new bullish Elliott wave count with the target at 1.23 at least unless the corrective pattern gets complex. A little dip to 1.215 could precede the expected rally.

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