US Dollar Falters Ahead of NFP Report, Traders Eye Potential for Significant Correction

This decline comes as traders reduce their USD exposure ahead of the highly anticipated US Nonfarm Payrolls (NFP) report for June, sparking speculation of a potential significant correction in the Dollar's value.

Market Drivers: NFP Expectations and Global Developments

• US Jobs Report in Focus: The NFP report is expected to reveal a slowdown in job creation, with estimates ranging from 140,000 to 237,000. A number below the lower end of this range could trigger a sharp USD sell-off, as the labor market is increasingly seen as the last pillar of strength in an otherwise softening US economy.
• Political Developments: The Labour Party's landslide victory in the UK and the potential for a fragmented parliament in France following the recent elections are adding to global uncertainties, contributing to the USD's weakness.
• Fed Rate Cut Bets: Market expectations of Fed rate cuts in September remain high, despite recent hawkish comments from Fed officials. This divergence in views is creating further volatility in the currency markets.

Technical Analysis: DXY Tests Key Support, Nosedive Potential Looms

The US Dollar Index (DXY) has fallen to fresh weekly lows, testing the crucial 105.00 support level. The 55-day Simple Moving Average (SMA) at 105.20 is now acting as resistance, and a failure to reclaim this level could signal further downside momentum.

The key support to watch is the double bottom formed by the 100-day and 200-day SMAs around 104.77, which also coincides with a long-term ascending trendline. If this support zone is breached, a sharp correction towards 104.44 or even lower could materialize.

Key Takeaways:

• The US Dollar is weakening as traders reduce their exposure ahead of the NFP report.
• Weaker-than-expected NFP data could trigger a significant correction in the DXY.
• The 105.00 level and the cluster of SMAs around 104.77 are crucial support levels to watch.