Dollar on reversal track after optimistic Mario Draghi comments and weak US data

European Central Bank President Mario Draghi's comments that revealed enhanced optimism of policymakers over the recovery of the region have further weakened the dollar which has been under pressure over weak US data of late.

The dollar index, the gauge that measures the greenback's trade-weighted strength against a basket of six major currencies, held the previous day's 12-day low on Thursday, 4 June, opening up deeper lows technically.

The USD index had dropped to a low of 95.22 on Wednesday, moving further off the one-month high of 97.78 touched on 27 May. On Thursday, the index traded near 95.30.

This week's move has broken the support of 50-day moving average, which is the second such break this year. A similar break before this was in April and that was for the first time since July 2014.

The break of the 50-day SMA has produced a strong bearish signal bolstering the case for further downsides in the downward channel that dates back to mid-March when the index hit a 12-year high of 100.40.

The index is now testing the 95.50 region, and a decisive break of that will take it to 93.80 next and then to 93.14, the four-month low touched on 14 May. A break of the 94.0 region will, in fact, open doors to the channel support, which comes near 92.0 as of now.

The fundamental case for further downsides in the greenback is also strong given the recent divergence in eurozone and US economic data with the US numbers coming weaker than expected.

The US Markit services PMI for May fell to 56.2 from 56.4 when the market was expecting a rise to 56.5. The ISM non-manufacturing PMI also dropped sharply to 55.7 from 57.8 when the consensus was for a moderate easing to 57.0.

The eurozone unemployment and retail sales data on Wednesday had surprised on the higher side.

As of now, the market focus is on US non-farm payroll data on Friday even though the weekly jobless numbers later on Thursday will also be watched.

Analysts have forecast that US employers may have added 225,000 jobs in May, more than 223,000 added in the previous month. Eurozone GDP data for the Q1 will also be revised on Friday and the numbers will be out a few hours before key US data.

For the USD index, the levels to watch on the higher side are 96.17 and 97.0. A bounce back above the 96-97 region will weaken the likelihood of hitting channel support near 92.0.