The greenback may see a more robust bounce and extend the ascent back towards long-term tops ahead of the weekend
The dollar turned positive on Thursday following three days of losses. However, the recovery momentum looks limited at this point, with the USD index rising less than 0.25% on the day. The index is now back above the 96.00 figure, refraining from revisiting yesterday’s highs around 96.30.
As risk sentiment has deteriorated today, the safe-haven demand lifted the greenback from local lows. Investors turned more cautious as the ECB and the Bank of England will announce their monetary policy decisions later today. The data revealed yesterday showed that the Eurozone CPI jumped unexpectedly to 5.1% from 5% in January. However, the elevated inflation doesn’t warrant a more hawkish tone from the ECB. The central bank will likely stay cautious as the economic recovery in the region continues to be uneven while geopolitical tensions persist.
As such, the common currency will hardly be able to capitalize on the upcoming meeting. Furthermore, the downside pressure surrounding the common currency could intensify should risk-off sentiment push high-yielding assets lower. Against this backdrop, the dollar may see a more robust bounce and extend the ascent back towards long-term tops ahead of the weekend if the US NFP employment report surprises to the upside on Friday. As a reminder, the ADP employment contracted by 300,000 unexpectedly, the report showed on Wednesday. So if the key release points to at least a modest growth, it would be dollar-positive.
Technically, the USD index could see more gains if the 96.30 zone turns back into support in the near term. Should the index overcome this intermediate barrier, the prices will target the 96.70 region, followed by the 97.00 figure. On the downside, the immediate support is now represented by the 96.00 level.
