• The index reclaims part of the ground lost on Thursday near 106.00.
  • US yields keep showing lack of traction at the end of the week.
  • The US economy is expected to have added 250K jobs in July.

The greenback regains the smile and motivates the US Dollar Index (DXY) to reverse Thursday’s pullback and refocus on the 106.00 neighbourhood ahead of the release of July’s Nonfarm Payrolls later in the session.

US Dollar Index now looks to data

Following Thursday’s deep decline, the index managed to regain some composure and retake the upper hand, revisiting at the same time the 106.00 zone at the end of the week.

The daily rebound in the dollar comes amidst the muted performance of US yields across the curve so far. Yields have been kind of ignoring further hawkish messages from FOMC governors, who hinted at the idea that the normalization process is still far from over and centring the debate at the same time on the size of the September hike. On the latter, CME Group’s FedWatch Tool sees the probability of a 50 bps rate raise at just above 60% vs. nearly 40% when it comes to a 75 bps hike.

Additional data in the US docket will see the Unemployment Rate (3.6% exp.), Average Hourly Earnings (4.9% YoY exp.) and finally June’s Consumer Credit Change.

What to look for around USD

Despite the risk aversion ebbed in past days, the dollar remains bid vs. the risk complex and keeps the index underpinned around 106 on Friday.

The very-near-term outlook for the dollar has deteriorated somewhat in recent sessions, particularly following the latest US GDP figures and the prospects for further tightening by the Fed in the next months, which carry the potential to drag further the economy into the contraction territory.

Among the positives for the buck still emerge the Fed’s divergence vs. most of its G10 peers (especially the ECB) in combination with bouts of geopolitical effervescence and occasional re-emergence of risk aversion.

Key events in the US this week: Non-Farm Payrolls, Unemployment Rate, Consumer Credit Change (Friday).

Eminent issues on the back boiler: Hard/soft/softish? landing of the US economy. Escalating geopolitical effervescence vs. Russia and China. Fed’s more aggressive rate path this year and 2023. US-China trade conflict. Future of Biden’s Build Back Better plan.

US Dollar Index relevant levels

Now, the index is gaining 0.19% at 105.95 and a break above 107.42 (weekly high post-FOMC July 27) would expose 109.29 (2022 high July 15) and then 109.77 (monthly high September 2002). On the other hand, the next support emerges at 105.04 (monthly low August 2) seconded by 104.95 (55-day SMA) and finally 103.67 (weekly low June 27).

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