US Dollar braces for jobs data this week as dust settles on Jackson Hole

• US Dollar price action begins week in the red, eating into Friday’s gains. 
• Traders face an eventful week with the monthly US jobs report out on Friday. 
• US Dollar Index to test support levels without putting its uptrend at risk. 

The US Dollar (USD) should be vulnerable to profit-taking these first few days of the week as traders have mulled the Jackson Hole speech from US Federal Reserve Chairman Jerome Powell. Although the speech did not hold any surprises, the repetition of the content was enough to dampen any hopes for an early Goldilocks scenario and saw yields spiking higher and rate cuts being pushed further down the line to mid-2024 at the earliest. Traders this week will  focus on the coming macroeconomic data points for any sudden contractions that might urge the Fed to rethink its strategy and still cut sooner. 

A very mild calendar for this Monday, especially with the United Kingdom bank holiday.  Expect even more lower volumes than normal for a Monday, which means any moves in the markets need to be taken with a pinch of salt. One datapoint to look out for this Monday is the Dallas Fed Manufacturing Business Index for August, expected to contract further from -20 to -21.60.

Daily digest: US Dollar settles for less

• The overall takeaway for this week will be that markets now have pushed forward any possible rate cuts after the rather repetitive hawkish stance of the Fed. Hopes for early cuts and a Goldilocks scenario have dampened and been pushed toward mid-2024 at the earliest. Any datapoint this week that points to deterioration of the current economic conditions or health of the US economy might make investors double down on their bets that rate cuts still might come sooner since the Fed could be forced to start cutting in an attempt to protect US economic growth. 
• At 14:30 GMT, the Dallas Fed Manufacturing Business Index for August is due to be published as the first data point to kick off this week. A contraction is expected from -20 to -21.6.
• Equities are jumping higher in Asia with the Japanese Topix index up 1.47% and the Hong Kong Hang Seng Index up 1.31%. The Hang Seng would have been higher if it had not been forced to drag along the 80% decline from construction group Evergrande, which is set to default anytime now. European markets are not applauding the moves in Asia as they are synthetically pushed higher because of the rate cuts and lower taxes from the Chinese finance ministry on stock trading. 
• The CME Group’s FedWatch Tool shows that markets are pricing in an 80.5% chance that the Federal Reserve will keep interest rates unchanged at its meeting in September. This is the lowest number in weeks as markets start to consider the possibility of another rate hike.
• The benchmark 10-year US Treasury bond yield trades at 4.21% after touching  a new yearly high last week on Monday at 4.3618%. After its stellar move, yields could start to slip lower a touch as markets have repriced the Jackson Hole communication. 
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US Dollar Index technical analysis: Look down

The US Dollar has been in a firm rally since mid-July and has been shooting for the stars last week with traders favoring the US Dollar again. The favoritism simply boiled down to the rate differential as the US is holding a higher interest rate and thus a better return on deposits against, for example, the Euro (EUR/USD) or the Japanese Yen (USD/JPY), which both have lower depositary rates than the Greenback. Seeing the steep incline from last week, a short pullback is more than granted, though support needs to be respected in order to keep the July rally ongoing and in good shape. 

On the upside, 104.69, the high of May 31, comes into play as the level to beat to the upside. Once that level is broken and consolidated, look for a surge to 105, where 105.110 (the peak of March 15) is an ideal candidate for a double top. Should the Greenback be on a tear, expect then at least a test at 105.88 – the 2023 peak from March 8.

On the downside, several floors are likely to prevent a steep decline in the DXY. The first one now is the big figure at 104. Though seeing the current decline, that does not look strong enough to hold. Rather look for the 200-day Simple Moving Average at 103.14. That is a much better candidate in order to catch some profit-taking pressure and re-enter. In case it does not hold, the safety net at 102.33 comes into play with both the 55-day SMA and the 100-day SMA both just being inches away from each other.