Trading idea on Dollar Index (DXY) for August 4, 2023
On Friday, the dollar index is declining, building on Thursday's bearish momentum and trading around 102.20, retreating further from the local high of 102.64 on July 7.
The negative dynamics of DXY was triggered by the release of the report on initial jobless claims, which showed an increase in the number of applications by 6 thousand to 227 thousand. In addition, the business activity indices of the manufacturing and services sectors of the U.S., published during the week, signaled an economic slowdown.
Analysts believe that the decline in services PMI from 53.9 to 52.7 ppts was caused by the tightening of financial conditions of the Federal Reserve and a decline in domestic demand.
Also negative factor for DXY should be considered the reduction of the US credit rating from AAA to AA+. by Fitch agency This decision may cause diversification of investment portfolios of the world central banks not in favor of the dollar.
Today the main event of the day and week will be the release of the US labor market report (12:30 GMT). Jerome Powell has repeatedly stated that all Fed decisions will be based on external data. Labor market and inflation reports remain the most important releases for the regulator.
According to forecasts, it is assumed that in July the U.S. economy created 200 thousand jobs. In June, the figure amounted to 209 thousand and disappointed traders, causing a sell-off in the dollar. It is likely that the June scenario will be repeated today. In addition, it is expected that the wage growth rate in the reported month decreased from 4.4% to 4.2%.
If the actual numbers match the expected numbers, the Fed may refuse to raise the rate further, which would send the dollar lower.
We suggest including a DXY sell order into the trader's trading plan\