• The US dollar retreated after solid gains in recent weeks.
• Employment in the non-agricultural sector increased by 12,000 in October, which was below market expectations.
• Markets continue to almost fully price in the Fed’s 25 basis point rate cut next week.

The US dollar index (DXY), which measures the value of the US dollar against a basket of six currencies, rebounded on the day despite delicate employment data as annual wage inflation rose to 4%, indicating that inflationary pressures remain elevated. Meanwhile, markets are almost fully expecting the Federal Reserve (Fed) to cut interest rates by 25 basis points next week. On the data side, ISM PMIs were also mixed for September.

DXY continues to trend sideways near 104.00. Despite persistent inflation, delicate employment growth data is increasing expectations for a less hawkish Fed stance, which may begin to weaken the USD.

Daily market recap: US dollar recovers from NFP

• U.S. nonfarm payrolls rose by just 12,000 in October, well ahead of market expectations of 113,000.
• The unemployment rate remained unchanged at 4.1%, as expected.
• Wage inflation, measured by average hourly wages, rose to 4% from 3.9%.
• Business activity in the U.S. manufacturing sector continued to decline at a faster pace in October, with the ISM Manufacturing PMI falling to 46.5 from 47.2 in September. This result was lower than market expectations of 47.6.
• The Services PMI rose to 54.9 in October, indicating mighty expansion in the US services sector.
• Markets are pricing in a 25 basis point rate cut by the Fed next week and an 85% chance of another 25 basis point rate cut in December.

DXY Technical Outlook: DXY Consolidates, Confirms 200-Day SMA

The index retested the 200-day Simple Moving Average (SMA) support at 104.15, and buyers successfully defended it. The relative strength index (RSI) is pointing lower, still near the overbought area, and the moving average convergence divergence (MACD) is printing lower green bars, indicating bearish momentum. In this sense, if buyers show resilience, it may look better around the mentioned SMA.

Key support levels include 104.15, 104.05 and 104.00, while resistance is found at 104.70, 104.90 and 105.00. Traders are closely monitoring these levels for the possibility of a breakout.