DXY: Bears lining up below the 200-DMA on a key week ahead

• US NFP disappointed, weighed on the US dollar.
• A key week of data and events ahead, focus on US/China trade deal. 
• DXY held up at key resistance area, focus is on the downside and bearish channel support.

The US dollar has been holding despite a disappointment in the Nonfarm Payrolls data on Friday, starting out the week in a quiet Asian session in the 97.35/42 range and supported by the 50-hour moving average. 

On Friday, the US December Nonfarm Payrolls rose 145k versus market expectations of 160k and the November gain was pared back to 256k from 266k. Moreover, the Average Hourly earnings were a disappointment at 2.9% YoY (est. 3.1% YoY) and there was a very mild lowering in the average workweek to 34.3 hours.

"The moderation in the headline-grabbing NFP was despite a solid rise in retail and hospitality sectors (both added over 40k) but mining detracted from the total. However, the separate household survey was robust, the unemployment rate holding at 3.5%, equalling lows since the late 1960s," analysts at Westpac explained. 

Analysts at ANZ Bank argued that which the jobs market is slowing on a trend basis, partly because of a shortage of skilled labour, "it remains very strong, which bodes well for the service sector and consumption-led growth in coming months."

Subsequently, the dollar took a knock but still held in bullish territory within a rising reversal through the 200 4-hour moving average. However, with the Federal Reserve is soon to take centre stage again and geopolitics may do little support the greenback should a dovish bias persist on additional economic disappointments. 

On Friday, the US 2-year treasury yields sunk to 1.57% from 1.58% prior to the NFP report while the 10-year yields dropped to 1.82% (from 1.85%) as the curve narrowed 2bps. "There was minimal movement in the pricing of Fed easing (no pricing of any move at the next Fed meeting on 29 January, though the terminal rate edged lower to 1.31% in early 2021)," analysts at Westpac explained. 

US/China trade deal on the horizon, Iran/US to underpin safe-haven dollars

Meanwhile, for the week ahead, there will be a focus on trade. US and China are set to sign a so-called, 'phase-one' trade deal. "White House economic advisor, Larry Kudlow, said that everything is in place on the China trade deal and that the US may start trade talks with the EU next week," analysts at ANZ Bank explained, adding, "the latter could have the potential to generate some volatility given tensions over France’s digital tax, the lingering threat of US auto tariffs and disagreement on access to US government procurement markets and agriculture."

In other geopolitics, signs that the US and Iran were stepping back from a deeper military conflict had little bearing on the dollar which had gained some safe-haven interest on the back of the events. We are yet to see how US Trump’s announcement of further sanctions on Iran will transpire into money flows, but it should support safe-haven buying and the US dollar. 

Key scheduled G10 events

• 13th Jan: Bank of Canada Business Outlook Survey, UK GDP.
• 14th Jan: US Consumer Price Index, NZIER Business Opinion Survey (Q4), China Trade data. 
• 15th Jan The signing of US/China phase-one trade deal to take place in Washington, with a high-level delegation from China attending.
• 16th Jan: US Retail Sales.

DXY levels

The DXY has been in a broader bear trend but has recent rallied from the bearish channel's support to test the 200 4-hour MA ahead of channel resistance. Zooming in, the hourly chart's 50 MA is supportive at this juncture. Bulls have the 200-DMA in focus at 97.70 although the resistance of the channel and confluence of the 200-DMA is likely to hold. Failures here will attract selling interest towards 97.10/20 area. A subsequent break here and closes below the 21-DMA opens risk to the channels support again in a continuation of the downside and 96 the figure.