The macroeconomic data released this week is favorable for the dollar's further growth, as they act as a kind of grateful ground for a more decisive tightening of the Federal Reserve's policy. On Friday, the focus is on the NFP monthly report. Traders expected an increase in jobs in March by 490,000, but expectations were not met, the figure was 431,000. Meanwhile, the unemployment rate decreased more – by 3.6% compared to the expected decrease of 3.7%. Investors will also pay attention to signals from average hourly wages amid expectations of a more aggressive policy response to curb high inflation.
A stronger NFP report could push the yield of treasuries and the dollar higher, and a weak one could cause disappointment. Although the employment indicator fell short of forecasts, the overall picture of the labor market cannot be called pessimistic. If dollar traders react with a decline, it won't be for long. The US currency's growth should support the fading hopes for de-escalation of the conflict in Ukraine. For EUR/USD, this means a further decline.
In the case of a downward movement, the 1.1040 mark is the first support before 1.1020 and 1.1000. The nearest resistance is 1.1080, then 1.1100. If the closing occurs above the 11th figure, bulls may show interest in the euro, and the short-term technical forecast will become bullish. In this case, the EUR/USD pair will have the opportunity to aim for 1.1160.
The euro can trip up the dollar
The dollar owes its significant strengthening recently primarily to the growth of treasury yields and signals for a 50 bps rate hike in May. However, the rally has recently stalled, and this factor can be regarded as a further downward movement of the greenback. Why?
The reversal on the dollar index and in the EUR/USD pair is associated with an increase in the yield of European government bonds. Investors began to put in quotes the probability of an European Central Bank rate hike this year, which contributed to the euro's rebound to the 1.1100 mark, whereas at the beginning of March the rate was about 1.0800.
The dollar index faced a fairly strong technical resistance around 99.25 and support around 97.75. It was mostly on the side in March. We can talk about a sharper fall in the dollar when the 97.75 mark is surpassed, especially against the euro.
The negative development of the scenario for the dollar will lead to the indicator falling to the next support level around 96.30. This will really become a problem for the greenback, as it will pose a threat to the long-term upward trend observed more than a year ago.
Important factors of the next week
Perhaps one of the main events will be the release of the minutes of the March FOMC meeting on April 6. Investors will be looking for clues as to how aggressive the Fed's actions will be in the future and how it plans to reduce its balance sheet. The release will contain signals and information necessary for the markets to analyze the further behavior of the dollar.
The dollar index should rise if the Fed shows that it is more aggressive than market players assume. If the 99.25 resistance breaks up, bulls will aim for the March 2020 highs above 100.00.