US Dollar Index Price Forecast: Recovery above 20-day EMA draws support from safe-haven demand ahead of US NFP

• At nearly 101.95, the US Dollar Index rises sharply as the AI rout boosts safe-haven demand.
• October’s US NFP figures, due at 13:30 GMT, are the keenly awaited focus for investors.
• Expectations for the Fed’s monetary policy are unlikely to shift significantly in response to the US NFP release.

An intensifying sell-off in shares linked to Artificial Intelligence (AI) infrastructure has prompted global sector rotation and strengthened demand for safe-haven assets, lifting the US Dollar (USD) sharply against its major currency peers.

Up 0.35% at nearly 101.95 at the time of writing, the US Dollar Index (DXY) tracks the Greenback against a basket of six major currencies.

US equities slide as AI unwind broadens, while defensives fare better

Selling has extended far beyond technology shares, with Danske Bank strategists observing that the recent “AI unwind escalated into an outright rout yesterday and took the whole US market with it,” in their assessment of the decline. Describing the scale of the losses, they report that “the S&P 500 fell 4.4%, with every sector lower and IT leading the declines, while the Nasdaq Composite lost 5.5% and the Nasdaq 100 6.4%, its worst session since March 2020.” However, the bank stresses that “defensives held up far better, so this was rotation within equities as much as money leaving them,” highlighting a marked repositioning between sectors rather than an indiscriminate withdrawal from risk assets.

October’s United States (US) Nonfarm Payrolls (NFP) report is due at 13:30 GMT, making it the closely watched focus on the economic calendar.

Estimates put new hiring by US employers at 65K, up from September’s 29K, while the Unemployment Rate is forecast to remain at 4.2%.

Forecasts for Average Hourly Earnings, a key wage-growth indicator, point to a more moderate annual increase of 2.9% Year-on-year (YoY), compared with 3% in September. The monthly rise is projected at 0.3%, following the previous reading of 0.1%.

Dollar loses clear directional response to jobs figures

Recent payroll reports have prompted increasingly subdued and uneven moves in foreign exchange markets, according to Commerzbank, leaving the US currency without a clear directional response to labour data. The bank remarks that “the US dollar does not seem entirely sure how to react to the labour market figures,” and consequently suggests that, “barring any major surprises, we might be in for a fairly relaxed end to the week.”

US Dollar Index Holds a Modestly Bullish Technical Bias

At 101.86 on the daily chart, Dollar Index Spot remains above its 20-day exponential moving average (EMA) of 101.79. This supports a modestly bullish near-term outlook and suggests underlying demand following the recent consolidation. A Relative Strength Index (RSI) reading of 53.26 is neutral, indicating some upward momentum without signs of overextension.

The 20-day EMA around 101.79 provides the first downside support. Nearby, the session’s opening level of roughly 101.86 serves as a pivot that must hold to maintain the constructive outlook. A lasting move beneath this support area would indicate waning buying pressure and leave scope for a deeper correction towards recent lows near 101.00. On the upside, the index needs to remain above the 20-day EMA to be able to retest its yearly high around 103.00.

(The technical analysis of this story was written with the help of an AI tool. Know more.)