The US dollar initially tried to rally during the trading session last week, but after the jobs number came out slightly hotter than anticipated, but perhaps more importantly to the market, showed a pullback in wage inflation, traders started to bet that the Federal Reserve was not going to be, as aggressive as once feared. Earlier in the week, the ADP employment figures had people concerned.
Ultimately, it looks as if the 0.92 level underneath is going to continue to be supported, and therefore it makes quite a bit of sense that if we do pullback to that area, it’s possible that the US dollar could continue to find support. It’s an area that’s been important multiple times in the past, so it does make a lot of sense that it could be continued support. However, if we break down below the 0.92 level, the market could very well find its way down to 0.90 level in short order.
The alternative scenario is that we break above the candlesticks of the last couple of sessions, perhaps reaching toward the 0.95 level. There’s a lot of psychology to that area, and you can also make an argument that previously we have seen a lot of both support and resistance in that area. Breaking above that level then would confirm that the trend is turning around again, and we may go back to the top of the overall larger consolidation area, meaning that we could go to the parity level before it’s all said and done.
Keep in mind that the pair does tend to be very sluggish, and therefore patients will be needed to realize any trade outcome. However, at this point it does look like there will be buyers just below, so it would not be overly surprising to see the US dollar gain again. The knee-jerk reaction after the jobs number quite often gets turned around, especially as we are at an extreme level of previous buying pressure.
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