US Dollar Index eases above 96.00 as yields retreat ahead of US NFP

US Dollar Index (DXY) struggles to extend the recent gains, easing to 96.23 during Friday’s Asian session.

Even so, the greenback gauge is up snapping the two-week bearish moves provided the US jobs report refrains from any major disappointment.

The greenback gauge’s weekly strength could be linked to the hawkish Federal Open Market Committee (FOMC) Meeting Minutes and the latest Fedspeak. After Fed minutes conveyed hawkish bias of the policymakers, suggesting a faster rate-hike and plans to discuss balance-sheet normalization, St. Louis Fed President James Bullard pushed for a March rate hike whereas Federal Reserve Bank of San Francisco President and an FOMC member Mary C. Daly marked the need to raise interest rates to keep the economy in balance.

It’s worth noting, however, that a reduction in the US inflation expectations, as measured by the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, seems to challenge the DXY bulls ahead of the key US data. Also challenging the greenback buyers are the recently downbeat prints of the US Factory Orders, Weekly Jobless Claims, ISM Services PMI and Good Trade Balance.

While the Fed signals propelled the US 10-year Treasury yields to poke a nine-month high the previous day, the benchmark bond yields dropped 1.9 basis points (bps) to 1.714% at the latest. The same helps US stock futures and Asia-Pacific equities of late.

To sum up, the Fed-linked signals and US data will be the key for the DXY moves. Adding to the catalysts are updates over Omicron and Sino-American tussles as China struggles recently. If we take a look at the US jobs report forecasts, the headline Nonfarm Payroll (NFP) is expected to rise from 210K to 400K while the Unemployment Rate may have eased to 4.1% from 4.2% prior. The underemployment rate, however, is likely rising from 7.8% to 8%. As a result, the DXY bulls are likely set for the first weekly gains in three.

Read: Nonfarm Payrolls Preview: A strengthening labor market backs a tighter monetary policy

Technical analysis

Although descending trend line from November 24 restricts the short-term upside of the DXY around 96.50, the gauge’s downside is likely to be challenged by the weekly support line near 96.10.