02.09.202214:32 Forex Analysis & Reviews: US Dollar Index nears 110.00 milestone, what's next?

The very positive US macro data released yesterday pushed the dollar to new 20-year highs.

First, in its monthly report, the Institute for Supply Management (ISM) published (among other data) the PMI in the manufacturing sector of the US economy, which is an essential indicator of the state of this sector and the US economy as a whole.

The ISM manufacturing PMI stood at 52.8 in August against the forecast of 52.0, indicating continued growth in business activity (data above 50 indicate an acceleration in activity). In addition, ISM's New Orders Index saw an increase of 3.3 percentage points to 51.3% from the 48% recorded in July, while the Employment Index rose to 54.2%, up 4.3 percentage point higher than the 49.9% recorded in July.

Secondly, the US Department of Labor reported that weekly initial jobless claims fell to 232,000 against the forecast of 248,000 and the previous value of 237,000.

Amid these positive data, the DXY dollar index jumped yesterday to a 20-year high of 109.97. Suppose the monthly report of the US Department of Labor, which is expected today at 12:30 (GMT), with data on the main indicators of the country's labor market for August, also lives up to market expectations and comes out with strong indicators. In that case, a breakdown of the local resistance level of 110.00 will be an "easy walk upside" for DXY. The next target for DXY will be the local resistance level and another "round" mark of 111.00.

As for today's report of the US Department of Labor, the non-farm payrolls (NFP) are expected to rise by 300,000 in August (after rising by 528,000 in July), and the unemployment rate at the same level as in July, 3.5%.

The indicators speak of the ongoing recovery of the US labor market. At the same time, unemployment remains at minimal levels. Buyers of the dollar will probably see new grounds for building up long dollar positions.

Incidentally, Atlanta Fed President Raphael Bostic, who spoke late on Wednesday, recalled the Fed's ultra-tight policy, saying: "I don't think we've finished tightening. Inflation remains too high."

However, returning to today's publication of the NFP, it is worth recalling that the market reaction to it can be unpredictable because the indicators of previous monthly reports can often be revised, and not always for the better. If the Department of Labor report turns out to be disappointing, then the correction of the dollar and the closure of some long positions on it at the end of the trading week cannot be avoided. Although the general line remains the same for now—the dollar is advancing.

As of writing, the DXY index (reflected as CFD #USDX in the MT4 trading terminal) is trading near 109.34, correcting after yesterday's rally.

In case of a breakdown of the short-term support level 109.18, the decline may continue to the support level of 108.65 and the support levels of 108.00, 107.28, if today's report of the US Department of Labor turns out to be very disappointing.