The dollar index has been under pressure throughout today’s session and is currently trading at 100.93, down 0.59%. The index appears to be undergoing profit taking ahead of the tomorrow’s US unemployment report, which will be released at 8:30am ET.
Tomorrow’s report is viewed as key given the upcoming FOMC meeting on December 13-14 and the high expectations for an interest rate increase. At present, fed fund futures are pricing in a 98.6% probability of rate hike. Consensus estimate is for an increase of 180,000 jobs, following an increase of 161,000 in October. The unemployment rate is expected to remain unchanged at 7%.
As a result of today’s decline, the greenback is approaching support at the November 22nd 100.65 low, which was reinforced with Monday’s move to 100.64 and subsequent bounce. Continuing to hold this level will keep the broader bias in the dollar firmly to the upside with expectations for a breakout to new rally highs in the short term.
Should selling accelerate upon the release of the employment data, a deeper correction down to the next level of support at the late October corrective top could unfold. This top comes in near the 99.00 level and corresponds to a 61.8% retracement of the advance from the early November lows. Holding this level of support would result in no damage to the dollar’s broader bullish technical condition.
With the Stochastic now out of heavily overbought territory as a result of the consolidation phase that has been intact since the November 23rd closing high was established, the dollar is now better-positioned to resume the advance over the near term.
Should the dollar make a move to the upside and break out to new rally highs, the next level of resistance is at the 103.50 level, which represents a corrective bottom established in July 2002. The current rally peak in the dollar at 102.05 represents a test of the minor corrective top established in March 2003.