US Dollar weakens sharply on dovish Fed expectations ahead of NFP

• The US Dollar extends losses to levels not seen since mid-January.
• US Federal Reserve Chairman Jerome Powell triggered the sell-off by confirming that rate cuts will come this year. 
• The US Dollar Index trades below 103.00, and might snap 102.00  if NFP data disappoints. 

The US Dollar (USD) is entering on Friday what could become a sixth consecutive day of losses after Thursday ended with the longest red candle of the week. In the showdown between the US Federal Reserve (Fed) and the European Central Bank (ECB), the Fed sounded more dovish as Chairman Jerome Powell committed to rate cuts this year, while ECB’s President Christine Lagarde did not even mention cuts in her statement after the ECB rate decision. Meanwhile, data out of the US that signals losing momentum gives markets the sense of urgency that the Fed will need to move quickly to salvage a soft landing. 

On the economic calendar front, only one real data point will be important this Friday. The US EmploymentReport will release its monthly change in Nonfarm Payrolls, with expectations at 200,000, coming from 353,000 a month earlier. The lowest estimate among economists is around 110,000 and the highest at 286,000, which means that any print below the lowest estimate will likely see another leg of US Dollar weakness. In contrast, an upbeat number above 286,000 will probably see the DXY pare back Thursday’s losses. 

Daily digest market movers: Fed is ready to pull the trigger on cuts

• The US Jobs Report for February will be published at 13:30 GMT:
  • Nonfarm Payrolls growth is expected to decline from 353,000 to 200,000.
  • Growth in Yearly Average Hourly Earnings is expected to fall slightly from 4.5% to 4.4%.
  • Monthly Average Hourly Earnings growth should also decrease from 0.6% to 0.3%.
  • The Unemployment Rate should remain stable at 3.7%.
• Equities are flat to mildly in the green after the Asia closing. Equities were on fire on Thursday after Powell commented that the Fed is ready to cut once data falls in line. 
• According to the CME Group’s FedWatch Tool, expectations for a Fed pause in the March 20 meeting are at 95%, while chances of a rate cut stand at 5%. 
• The benchmark 10-year US Treasury Note trades around 4.07%, the lowest level in over a week. 

US Dollar Index Technical Analysis: Thursday’s nosedive

The US Dollar Index (DXY) broke below 103.00 on Thursday after a string of events with both the ECB and the Fed firing up markets on possible rate cuts to come. The US Jobs Report this afternoon could make it a full week of losses for the DXY, or have it salvage the situation by pushing it back up above 103.00. One thing remains clear: the road to recovery back to 105.00 will be long and hard, with King Dollar going away for a longer time. 

On the upside, the first reclaiming ground is at 103.28, the 55-day Simple Moving Average (SMA), and at the 200-day SMA near 103.72. Once broken through, the 100-day SMA is popping up at 103.81, so a bit of a double cap in that region. Depending on the catalyst that pushes the DXY upwards, 104.60 remains the key level on the topside. 

The DXY is trading a bit in nomad's land, with not really any significant support levels nearby. More downside looks inevitable with 101.75 up next, which bears some pivotal relevance. Once through there, the road is open for another leg lower to 100.61, the low of 2023.