The US Dollar (USD) is rolling over and trades in the red after ADP numbers failed to add more US Dollar strength. The underperforming ADP numbers have triggered risk on in equities and see US yields decline further. The mix of all this is base of a bit of Greenback weakness. On the economic front, traders had the monthly ADP number which, as already mentioned, was a miss on estimates. The 103,000 print was substantially below the expected 130,000 and the previous 113,000. Despite the low number, the Greenback is holding steady in the reaction thereafter, with traders seeing support in the fact that the ADP is holding above 100,000.
The US Dollar trades around 104.00 and looks set to head into a third straight day of gains. Although yields are declining in the US, they are falling even quicker in Europe and other countries, which means that intrinsically the US Dollar is valued higher in terms of return than most of its peers. This rate differential, which persists even in a declining-rate-environment, could see the US Dollar Index (DXY) head back to levels near 105.00-106.00. The DXY broke the high on Monday and closed off near 103.54 on Tuesday. The DXY could still make it further up, should employment data trigger rising US yields again. A two-tiered pattern of a daily close lower followed by an opening higher would quickly see the DXY back above 104.28, with the 55-day and 100-day Simple Moving Averages (SMA) turned over to support levels. To the downside, the 200-day SMA shouldact as support and not allow the DXY to drop below 103.57. If it fails, the lows of June make sense to look for some support near 101.92. Should more events take place that initiate further declines in US rates, expect to see a near-full unwind of the 2023 summer rally, heading to 100.82, followed by 100.00 and 99.41.
