US Dollar Index advances to 3-week highs near 90.60 ahead of NFP

• DXY adds to recent gains well past the 90.00 mark.
• Auspicious data, higher yields prop up the dollar.
• May Nonfarm Payrolls will take centre stage later in the session.

The dollar keeps the upbeat tone well and sound for yet another session and pushes the US Dollar Index (DXY) to fresh multi-week highs around 90.60.

US Dollar Index focuses on Payrolls

The index adds to gains recorded in the second half of the week well above the 90.00 yardstick following better-than-expected results in in the US docket and the rebound in US yields.

In fact, yields of the key US 10-year note manage to regain the 1.60% mark and beyond on Friday, while market participants continue to adjust to the solid prints from May’s ADP report (978K vs. 650K expected) all ahead of the publication of Nonfarm Payrolls (650K exp.) due later in the NA session.

The dollar gained extra ground in response to rising speculation of further improvement in the labour market, which in turn could morph into rumours of tapering talk on expectations of higher inflation in the month to come. Against this view, as usual, stands the majority of FOMC governors and the ongoing Fed’s forward guidance.

On the latter, NY Fed J.Williams deemed as premature any modification of the QE programme for the time being, although he did not ruled out that scenario in the future. Atlanta Fed R.Kaplan, instead, advocated for the soon start of tapering talk.

Later in the US docket, the economy is expected to have added 650K jobs in May, while the jobless rate is seen ticking lower to 5.9% in the same period. In addition, Factory Orders for the month of April will close the weekly calendar. Furthermore, Chief Powell will participate in a panel on Climate organized by the BIS.

What to look for around USD

The index manages to extend the rebound past the 90.00 yardstick at the end of the week. The very near-term outlook on the dollar appears improved on the back of better-than-expected data releases in past sessions, although it remains on the negative side in the longer run. This view stays supported by the perseverant mega-dovish stance from the Federal Reserve (until “substantial further progress” in inflation and employment is made) in place for the foreseeable future and rising optimism on a strong global economic recovery.

Key events in the US this week: Nonfarm Payrolls, Factory Orders (Friday).

Eminent issues on the back boiler: Biden’s plans to support infrastructure and families, worth nearly $6 trillion. US-China trade conflict under the Biden’s administration. Tapering speculation vs. economic recovery. US real interest rates vs. Europe. Could US fiscal stimulus lead to overheating?

US Dollar Index relevant levels

Now, the index is gaining 0.06% at 90.54 and a breakout of 90.62 (weekly high Jun.4) would open the door to 90.90 (weekly high May 13) and finally 91.06 (100-day SMA). On the other hand, the next contention emerges at 89.53 (monthly low May 25) followed by 89.20 (2021 low Jan.6) and then 88.94 (monthly low March 2018).