US Dollar Index Price Forecast: Sits Near Two-Year Peak, Above 109.00 Ahead of US NFP

(Jan 10): Oil prices rose in early Asian trade and were on track for a third straight week of gains with icy conditions in parts of the US and Europe driving up fuel demand.

Brent crude futures climbed 69 cents, or 0.9%, to US$77.61 a barrel at 0752 GMT. US West Texas Intermediate crude futures gained 66 cents, also up 0.9%, to US$74.58.

Over the three weeks ending Jan 10, Brent has advanced over 6% while WTI has jumped more than 7%.

Analysts at JPMorgan attributed the gains to growing concern over supply disruptions due to tightening sanctions against Russia and Iran, amid low oil stockpiles, freezing temperatures in many parts of the US and Europe and improving sentiment regarding China's stimulus measures.

The US weather bureau expects central and eastern parts of the country to experience below-average temperatures. Many regions in Europe have also been hit by extreme cold and will likely continue to experience a colder-than-usual start to the year, which JPMorgan analysts expect to boost demand.

"We anticipate a significant year-over-year increase in global oil demand of 1.6 million barrels a day in the first quarter of 2025, primarily boosted by ... demand for heating oil, kerosene, and LPG," JPMorgan said in a note on Friday.

Meanwhile, the premium of the front-month Brent contract over the six-month contract reached its widest since August this week, potentially indicating supply tightness at a time of rising demand.

Oil prices have rallied despite the US dollar strengthening for six straight weeks. A stronger dollar typically weighs on prices, as it makes purchases of crude expensive outside the US.

Supplies could be further hit as US President Joe Biden is expected to announce new sanctions targeting Russia's economy this week in a bid to bolster Ukraine's war effort against Moscow before President-elect Donald Trump takes office on Jan 20. A key target of sanctions so far has been Russia's oil industry.

"Uncertainty over how hawkish Trump will be with Iran will be providing some support. Asian buyers have already been looking for alternative grades from the Middle East, with broader sanctions against Russia and Iran making this oil flow more difficult," ING analysts said in a note on Friday.

Source: Theedgemarkets

Source: AP

USD/CAD continues its winning streak for the fourth successive session, trading around 1.4420 during the Asian hours on Friday. The USD/CAD pair appreciates as the US Dollar (USD) receives support from hawkish Federal Open Market Committee (FOMC) Meeting Minutes and uncertainties surrounding tariff plans proposed by the incoming Trump administration.

The US Dollar Index (DXY), which measures the USD’s performance against six key currencies, trades near 109.30 at the time of writing, just below its two-year high of 109.56 reached on January 2. The Greenback gains strength as long-term US bond yields continue to rise due to significant supply. As of now, the 10-year yield is at 4.69%, while the 30-year yield stands at 4.93%.

Kansas Fed President Jeffrey Schmid made headlines on Thursday, emphasizing the need to reduce the Fed's balance sheet, suggesting that interest rate policy is approaching its long-term equilibrium. He noted that any future rate cuts should be gradual and guided by economic data.

Additionally, Federal Reserve Board of Governors member Michelle Bowman added her voice to a chorus of Fed speakers this week as policymakers work double-duty to try and smooth over market reactions to a much tighter pace of rate cuts in 2025 than many market participants had previously anticipated.

Canadian Prime Minister Justin Trudeau said Thursday that he would respond if Trump does impose tariffs. Trudeau further stated that President-elect Donald Trump’s threat of slapping a 25% tariff on Canadian products would ultimately hurt American consumers and businesses. Canada, Mexico, and China are the US’s biggest trade partners.

Meanwhile, higher crude Oil prices may help limit the Canadian Dollar's (CAD) losses, as Canada remains the largest Oil exporter to the United States (US). At the time of writing, West Texas Intermediate (WTI) Oil price holds steady after recent gains, trading around $73.70 per barrel.

Crude Oil prices are supported by expectations of increased heating fuel consumption due to prolonged colder temperatures across the Northern Hemisphere. Additionally, signs of strong demand are evident, highlighted by a report indicating a seventh consecutive weekly decline in US crude stockpiles.

On the data front, traders are now focused on US labor market figures, particularly Nonfarm Payrolls (NFP), for clues on the Fed’s future policy direction. In Canada, attention will turn to December's Net Change in Employment and Unemployment Rate for further economic insights.

Source: FXSTREET

USD/CHF has been on an incredible run since bottoming out in September 2024. The rally which has been largely driven by the US Dollar Index has continued with brief pullbacks and pauses as it hovers comfortably above the psychological 0.9000 handle.

In reality if one looks at the US Dollar Index and USD/CHF daily charts they are mirror images of another. A sign of the US Dollars significance in the recent rally.  As you can see the below just how correlated the two have been with the USD Index represented by the red/purple line and USD/CHF in the blue line.

US Dollar Index (DXY) vs USD/CHF Daily Line Chart

Source: TradingView (click to enlarge)

The Swiss economy has faced its fair share of challengers but the weakening currency is not one of them. Switzerland, which is viewed as somewhat of an export economy, had been under pressure by those in the export industry as the strengthening Franc left exporters unable to compete.

Markets are pricing in a rate cut from the SNB in March and if expectations around rate cuts from the Federal Reserve continue to be hawkishly repriced, this could leave USDCHF vulnerable to further upside.

US Jobs data due tomorrow could have a significant impact in this regard, as markets return from the US Holiday today.

Technical Analysis

From a technical standpoint, USD/CHF has been on a tear since the back end of September 2024.

More recently however, price has formed a base around the psychological 0.9000 level which is serving as strong support. The relationship with the DXY was shown above and underscores the importance of the index in USD/CHFs next move.

USD/CHF Daily Chart, January 9, 2025

Source: TradingView (click to enlarge)

Dropping down to a four-hour chart and it did appear that USD/CHF might be ready for a deeper retracement on January 6. USD/CHF broke structure by closing below the swing low of January 2, putting the bears in control.

However, instead of printing a lower high, USD/CHF went on to break the previous swing high and bring the bullish momentum back into play.

There is some light at the end of the tunnel for bears however. USD/CHF currently trades at 0.9128 with the most recent high just above at 0.9137.

A rejection of the previous high would lead to a double top pattern print, which is usually a sign that a reversal may be incoming.

A lot of this will depend on the US Dollars performance in the coming days but is worth watching.

A break of the resistance at 0.9137 brings resistance at 0.9157 and potentially 0.9224 into focus.

A rejection and double top print could open the door to a deeper retracement which may find support at 0.9087 before the 0.9040 and psychological 0.9000 come into focus.

USD/CHF Four-Hour Chart, January 9, 2025

Source: TradingView (click to enlarge)

Source: ACTIONFOREX