U.S dollar rallies high, but near-term outlook is still negative 

The greenback rallied higher on Wednesday against the euro, pound, and Swiss franc, rising from its more than two-month lows, ahead of significant nonfarm payrolls report later this week.

After dropping to its lowest level since mid-April overnight at 103.99 index points, the U.S. dollar index was up 0.1% at 104.12 points in Wednesday morning trading. The Euro makes up most of the dollar index, dropping 0.2% to $1.0879. 

Softer US data has caused the Euro to increase, making an effort at a bullish breakout. Thus yet, there hasn’t been enough conviction. If channel resistance, is now the immediate support, is tested, it may be possible to determine whether the advance has the necessary momentum to continue.
A hawkish cut by the ECB, which is extremely difficult to pull off, may help US data soften further, which is necessary for a persistent rise higher. However, the committee will almost certainly want to send a cautious and balanced message for additional cuts. The European Central Bank (ECB) will likely announce the first rate drop on Thursday. But Friday is the big day for average hourly wages and US nonfarm payrolls.

Even with Wednesday’s modest advances, the outlook for the Dollar Index remains negative. Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) highlight the index is still in negative territory, indicating ongoing selling pressure and a bearish outlook. 

The Job Vacancies and Labor Turnover Survey, or JOLTS report, showed that U.S. job vacancies dropped more than anticipated in April to the lowest level in three years. As a result, the greenback had been rising against a basket of currencies led by the Euro and began to decline against the yen. On the final day of April,  U.S job postings, a gauge of labor demand, decreased by 296,000 to 8.059 million, the lowest level since February 2021

The dismal Institute for Supply Management (ISM) PMI data for May, which had been driving the bearish market environment, seemed to have stabilized.  The market is increasingly concerned about a slowing US economy, which could lead the Federal Reserve (Fed) to lower interest rates sooner. 

The market’s focus has now switched to other labor market data that will provide further insights into the US economy. This data includes ADP Employment Change numbers, Nonfarm Payrolls, Wage inflation, and Unemployment data for May. 

Before Friday’s U.S. job report, which is anticipated to reveal 185,000 new jobs created in May, up from 175,000 in April, market participants’ attention is focused on the JOLTS data. 

The JOLTS report came after data on Monday revealed an unexpected drop in construction investment and a second consecutive month of slowing manufacturing growth. 

In contrast, April saw an increase in U.S. industrial orders for a third consecutive month, driven by the need for transportation equipment.  Factory orders increased by 0.7%, in line with the revised March pace.