US Dollar Index struggles to defend 103.00 as traders brace for Fed, NFP

• DXY bulls turn cautious after Friday’s pullback from two-decade high, also amid anxiety ahead of the key data/events.
• Multiple holidays in Japan, China challenge US Dollar Index moves but mildly bid S&P 500 Futures keep intraday sellers hopeful.
• US ISM Manufacturing PMI will decorate today’s calendar but Fed, NFP will be crucial for clear directions.

US Dollar Index (DXY) drops towards 103.00 during Monday’s Asian session, extending the previous day’s pullback from a 20-year high, as an absence of bond moves and mildly bid stock futures favor sellers amid a sluggish session. That said, the DXY drops 0.10% intraday to 103.10 by the press time.

The greenback gauge’s latest weakness could be linked to the inaction of the US Treasury yields around 2.90% level. The reason could be linked to multiple holidays in China and Japan during this week. Also challenging the DXY bulls are the cautious sentiment ahead of this week’s key Fed meeting and the monthly US employment data.

With the Fed’s 0.50% rate hike seems mostly priced in, anxiety over the balance sheet normalization and a likely cautious stand of the Fed policymakers during Wednesday’s meeting seem to favor the DXY’s pullback. In doing so, the USD bulls also pay a little attention to the recently firmer US data and downbeat equities.

That said, the S&P 500 Futures print mild gains for the day, which in turn allow DXY to extend the previous day’s weakness amid a sluggish session.

Moving, US ISM Manufacturing PMI for April, expected at 58.0 versus 57.1 prior, will decorate today’s calendar and can entertain DXY traders. However, major attention will be given to Wednesday’s Fed verdict and Friday’s US Nonfarm Payrolls (NFP). Should the Fed disappoint markets, the odds of witnessing further downside of the DXY can’t be ruled out. On the contrary, the further upside of the greenback hinges on how strong the policymakers feel for the balance-sheet normalization and the future path of rate hikes, as well as Friday’s jobs report.

Also read: The week ahead: Bank of England, Federal Reserve to raise rates, RBA, BP, Shell and Next results

Technical analysis

Although overbought RSI conditions and the market’s anxiety trigger the greenback gauge’s latest pullback, March 2020 peak and an ascending trend line from late March, respectively around 103.00 and 102.10, challenge the US Dollar Index bears.