US Dollar clings on to weekly gains despite downside pressure from Yen

• The US Dollar (Index) dropped over 0.50% overnight after the Yen appreciated 4% in one day.
• Traders brace for Nonfarm Payrolls this Friday. 
• The US Dollar Index has broken back below 104, though still holds gains for this week.

The US Dollar (USD) was having a crisis on Thursday after an outside event tripped the US Dollar Index (DXY) 0.50% into the red. The outside pressure came from the Japanese Yen which appreciated at one point nearly 4% intraday against the Greenback, and which is a major part of the basket of FX that makes up the US Dollar Index. The situation has stabilised for now, as traders focus on the US Jobs Report to be published later in the day. 

On the economic front, the US Jobs Report will be the main event and will draw up all the attention. Traders will also need to be mindful of the University of Michigan Preliminary numbers coming out at the end of the European trading session. These numbers could either confirm or contradict the earlier Nonfarm Payroll (NFP) numbers and trigger volatility on the last trading day of the week.

Daily digest: NFP and Michigan catalysts

• A standstill in the markets until 13:30 GMT when the US Nonfarm Payrolls report comes out:
  1. Nonfarm payrolls number for November is expected to rise from 150,000 to 180,000.
  2. Monthly Average Hourly Earnings are expected to head from 0.2% to 0.3.%.
  3. Yearly Average Hourly Earnings are to head from 4.1% to 4%.
  4. The US Unemployment Rate for November is to remain unchanged at 3.9%.
  5. A bit more detail on the Nonfarm Payroll number: Expectations by economists range from 45,000 to 275,000. Expect thus a much stronger US Dollar and an upward move in the DXY when the NFP number snaps above 275,000. Any number below 45,000 will trigger substantial US Dollar weakness with a devaluing Greenback across the board and a DXY which will be sinking lower. 
• Near 15:00 GMT the University of Michigan will release its preliminary data findings for December:
  1. The Sentiment Index is expected to head from 61.3 to 62.
  2. The Inflation expectations are set to head from 3.2% to 3.1%.
• Equities in Asia are falling out of bed for a second straight day in the aftermath of the possible decision by the Bank of Japan to increase the benchmark rate, which has been negative for decades. European equities are going the other way and are mildly in the green. US equity futures are flat.  
• The CME Group’s FedWatch Tool shows that markets are pricing in a 97.7% chance that the Federal Reserve will keep interest rates unchanged at its meeting next week.  
• The benchmark 10-year US Treasury Note drops to 4.17%. 

US Dollar Index technical analysis: Where to go from here

The US Dollar is stuck on a crucial crossroads that might trigger either substantially more and longer-term US Dollar appreciation or devaluation. In the runup towards Super Wednesday and Super Thursday when markets will hear from no less than four of the biggest central banks in the world, it looks like the Greenback might reestablish its label as King Dollar. Traders looking for clues would best keep an eye on the spread between the US 2-year yield and the German 2-year yield, which has been getting wider – a situation which is correlated with a stronger US Dollar. 

The DXY is bouncing back up again after the decline on Thursday where the Japanese Yen appreciation was just too much to bear. The DXY could still make it further up, should employment data trigger a spike in US yields again. A two-tiered move – first with NFP and then University of Michigan numbers – could move the DXY back above 104.28, with the 200-day and 100-day Simple Moving Averages (SMA) turned over to support levels. 

To the downside, the 200-day SMA has done a tremendous job in supporting the DXY with buyers coming in below 103.56 and pushing it back towards that same level near the US closing bell. If it fails this Friday, the lows of November near 102.46 is a level to watch. More downside pressure could bring into view the 100 marker, in a case where US yields sink below 4%.