Risk Appetite Continues to Dominate Market Pricing, Limiting the Dollar’s Rebound Potential

Summary:

The April U.S. nonfarm payrolls report came in stronger than expected, reinforcing the resilience of the labor market. However, the U.S. dollar is no longer being driven solely by economic fundamentals. Against the backdrop of improving global risk appetite, easing geopolitical tensions surrounding Iran, and growing expectations for Federal Reserve rate cuts later this year, stronger employment data may ironically accelerate capital flows into equities and high-beta assets, leaving the U.S. Dollar Index under medium-term downside pressure.

SELL USDX

EXP

TRADING

97.750

Entry Price

96.390

99.350

98.140 -0.020 -0.02%

0.0

Pips

Flat

96.390

Exit Price

97.750

Entry Price

99.350

Fundamentals

U.S. nonfarm payrolls for April 2026 exceeded market expectations, while the unemployment rate remained unchanged at 4.3%, in line with forecasts. In our view, April’s data provides a more accurate reflection of current labor market conditions than the previous two reports for several reasons: first, seasonal and one-off distortions were significantly reduced; second, business survey response rates improved considerably; and third, the impact of the Birth-Death model was the smallest seen in the past four months, enhancing the overall credibility of the report.

From the demand side, the U.S. labor market continues to display resilience, although signs of gradually rising layoff pressure are emerging. On the supply side, both the labor force participation rate and employment-population ratio declined slightly. However, participation among the core 25–54 age group remained stable, suggesting that the weakness was driven more by aging demographics and retirement trends rather than a large-scale withdrawal of prime-age workers.

Regarding Federal Reserve policy, we maintain our previous view: if tensions surrounding Iran continue to ease and falling oil prices help cool inflation expectations, the baseline scenario under a future Warsh-led Fed remains one 25-basis-point rate cut during the second half of the year.

However, for markets, the larger issue may no longer be the employment data itself, but rather the fact that global risk appetite continues to dominate asset pricing. The recent weakness in the U.S. dollar already reflects this shift. As investors increasingly price in de-escalation in the Middle East, lower energy prices, and a broader normalization of the global economy, equities continue hovering near record highs.

In this environment, even slightly weaker payroll data could still be interpreted positively, provided it does not reignite fears of a hawkish Federal Reserve or trigger recession concerns.

This creates a relatively unusual trading dynamic for the dollar. Under normal circumstances, strong nonfarm payrolls would support the currency by lifting Treasury yields and tightening Fed expectations. At the current stage, however, stronger labor market data may instead reinforce risk-on sentiment, encouraging further capital inflows into equities and high-yield, high-beta currencies, thereby weakening the dollar’s traditional safe-haven appeal.

Risk Appetite Continues to Dominate Market Pricing, Limiting the Dollar’s Rebound Potential_1

Technical Analysis

From a technical perspective, the U.S. Dollar Index has stabilized temporarily near 97.49, which corresponds to the 61.8% Fibonacci retracement of the decline from 100.64 to 95.55.

Nevertheless, as long as the key resistance level at 99.09 remains intact, the broader short-term trend continues to favor further downside.

A decisive break below 97.63 could open the door for another leg lower, potentially pushing the index back toward the 96.50 region and below. Conversely, only a sustained recovery above 99.09 would suggest that the bearish short-term structure is beginning to stabilize.

Trading Recommendation

Trade Direction: Sell

Entry Level: 98.00

Target Level: 96.39

Stop Loss: 99.35

Valid Until: 2026-06-10 23:55

Support Levels:97.63 / 97.36 / 96.49

Resistance Levels:98.28 / 98.60 / 99.34

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