US Dollar Index looks cautious around 107.00 ahead of NFP

The greenback appears somewhat consolidative in the 107.00 neighbourhood when tracked by the US Dollar Index (DXY) at the end of the week.

US Dollar Index focuses on Payrolls

The absence of a clear direction in the dollar’s price action remains well in place for the second session in a row, as market participants get ready for the release of the always relevant Nonfarm Payrolls for the month of June later on Friday.

In the same line, US yields look somewhat consolidative in the upper end of the monthly range following the rebound earlier in the week.

In the meantime, recession talks seem to be taking a breather, while speculation around the Fed’s normalization process and the next moves regarding interest rates continue to take centre stage.

On the latter, and according to CME Group’s FedWatch Tool, the probability of a 75 bps rate hike at the July 27 gathering climbs to almost 94% on Friday from below 1% recorded a month ago.

In the docket, and other than the NFP, Wholesale Inventories, Consumer Credit Change and the speech by NY Fed J.Williams (permanent voter, centrist) are all due later.

What to look for around USD

The index rose to nearly 2-decade highs around 107.30 earlier in the week, all against the backdrop of further deterioration in the risk complex in response to rising recession talks.

Further support for the dollar is expected to come from the Fed’s divergence vs. most of its G10 peers (especially the ECB) in combination with bouts of geopolitical effervescence and the re-emergence of the risk aversion among investors. On the flip side, chatter of US recession could temporarily undermine the uptrend trajectory of the dollar somewhat.

Key events in the US this week: Non-farm Payrolls, Unemployment Rate, Wholesale Inventories, 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 up 0.01% at 107.04 and a break above 107.26 (2022 high July 6) would expose 107.31 (monthly high December 2002) and then 108.74 (monthly high October 2002). On the flip side, the next support aligns at 103.67 (weekly low June 27) seconded by 103.41 (weekly low June 16) and finally 101.29 (monthly low May 30).