DXY reverses from NFP, where next?

The DXY reversed earlier than expected. The previous analysis was that the DXY could climb to 114, with the 113 price level providing some resistance with a probable retest of 112.55 before trading higher again.

However, we saw the DXY weaken MASSIVELY on the release of the US employment data on Friday, with some other contributing factors:
- NFP was higher than expected (261k vs 197k) BUT the unemployment rate increased from 3.5% to 3.7% AND average hourly earnings increased.
- average hourly earnings increase could signal continual wage inflation growth, but the unemployment rate increase might be the weakness in data that the FOMC warned about.
- at the end of such a high volatility week, it would be natural that market participants take profit, with prices retracing.

So, where to from here?

The good news, the only significant economic data to be released this week for the USD is the CPI data on Thursday, and the expectation is for y/y inflation to slow down slightly, from 8.2% to 8.0%.

In the lead-up to the CPI data release:

- If the DXY breaks below 110.70, the DXY could weaken further towards 109.50, before a possible rebound back towards 111.00

- If the DXY holds above 110.70, the DXY could rebound towards 111.70 and trade higher on the release of the CPI data.