The US Dollar Index (DXY) crashed this week, reaching its lowest level since February 2022 as traders waited for the upcoming US nonfarm payrolls data and after Jerome Powell hinted that he may consider cutting rates as early as in July. It dropped to $96.8, down sharply from the year-to-date high of $110.20.
US nonfarm payrolls data ahead
The US Dollar Index will be in the spotlight today, July 3, as investors wait for the upcoming nonfarm payrolls jobs data. Economists polled by Reuters expect this closely watched report to show that the US economy added over 100,000 jobs in July, a decline from the previous month’s 139,000.
These analysts also anticipate the data to reveal that the unemployment rate rose slightly to 4.3% as companies maintained concerns about Donald Trump’s tariffs, which he announced on his Liberation Day. Wage growth is expected to grow by 3.9%.
A report released on Wednesday showed that the labor market remained under pressure in July, with companies shedding 33,000 jobs. ADP noted that companies were hesitant about hiring new workers even when others leave.
It is unclear whether the coming NFP data will show a similar figure, but odds are that it will be better. For one, the official NFP data includes government workers, while the ADP figure only looks at the private sector only.
Weak NFP data will raise the possibility that the Federal Reserve will start cutting interest rates as early as in July. In a statement at an ECB meeting this week, Jerome Powell said that he could not rule out a cut in the July meeting.
He maintained that the bank would make its determination meeting by meeting. In a note to investors, analysts at TD Securities said:
“We would expect any downside surprises in the headline or larger upward move in the unemployment rate to generate a larger market reaction than upside surprises,”
US Dollar Index outlook
Analysts have a mixed outlook on the US Dollar Index. As we wrote here, Morgan Stanley analysts are highly bearish and expect that the DXY Index will continue falling, and possibly hit $90 later this year.
These analysts cited the fact that the Fed will deliver two cuts this year and seven in 2026. They pointed to the fact that Donald Trump will only appoint a Fed official who will commit to cutting rates.
Other analysts expect the US Dollar Index to bounce back, arguing that the recent crash has become extreme. The analyst wrote that:
“If unemployment stays low, I think we probably are at peak dollar bearishness. The labor market will be key. If the labor market started to crumble, then people could get more bearish.”
DXY Index technical analysis
US Dollar Index chart by TradingView
The daily chart shows that the DXY Index has been in a deep bear market in the past few months, moving from $110 in January to $96.4 today. It recently crashed below the support at $97., its lowest level in April, invalidating the double-bottom pattern that was forming.
The index has formed an inverse cup-and-handle pattern, a popular bearish continuation sign in technical analysis. It remains below the 50-day and 100-day Exponential Moving Averages (EMA).
Therefore, the index will likely bounce back after the jobs report and then retest the resistance at $97.9 and then resume the downtrend. If this happens, the greenback will end the year at $90 or even below.
The bearish US Dollar Index will become invalid if it moves above the key resistance at $100.25. Moving above that level will point to more gains over time.
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