What’s Happening?

USD has broken out of a downtrend following neutral to hawkish comments out of the Fed’s Jackson Hole conference which have traders taking the possibility of a September interest rte increase more seriously. A number of key US indicators are due this week including ADP and nonfarm payrolls plus manufacturing PMI which could keep the Fed speculation pot boiling.

Technicals:

Since May, USD index has been swinging up and down within a 93.00 to 97.00 sideways trading range. For the last month DXY had been in retreat, but some support had emerged in the 94.00 to 95.00 area.

On Friday, the index broke out of a month-long downtrend and regained the 95.00 round number, signalling the start of a new upswing that has been confirmed by the RSI indicator moving back up above the 50 level. Initial upside resistance may appear near 96.00 then 96.50 and 96.90, around previous highs.

Fundamentals:

Back in June, the Fed had held off raising interest rates due to uncertainty over what the Brexit referendum, could mean for the world economy and financial markets.

Over the course of the summer, initial post-Brexit trading volatility as subsided, the UK economy did not collapse as some had feared and the US economy has continued to show strong momentum. Recent positive earnings out of retailers confirmed a strong US consumer economy while last week’s strong durable goods orders indicated the corporate side is picking up steam as well.

FOMC Chair Yellen indicated in her speech that the US is nearing the Fed’s objectives for employment and inflation. On Monday, core PCE inflation came in above expectations, keeping the pressure on the Fed to take action. This week’s employment figures could seal the deal for a September rate increase or muddy the waters further depending on how strong or weak they are.

Overall, strong US data this week could be seen as hawkish favouring a September interest rate increase which could boost USD and weigh on stocks. Weak data could be seen as dovish, reducing the chance of a September increase, which could weigh on USD and help stocks to rebound.