US Dollar Index remains under pressure and approaches 95.00 ahead of NFP

• DXY extends the weekly leg lower to the 95.15/10 band.
• US yields trade on a mixed tone at the end of the week.
• January Nonfarm Payrolls next of relevance in the docket.

The greenback alternates gains with losses in the lower end of the weekly range around 95.30 when gauged by the US Dollar Index (DXY).

US Dollar Index now focuses on data

The index trades without a clear direction at the end of the week and threatens to challenge the key support at the 95.00 yardstick amidst mixed US yields and the prevailing sentiment favouring the risk complex.

It is worth recalling that the greenback accelerated losses to the low-95.00s in past hours in response to the unexpected hawkish message from Chairwoman Lagarde at the ECB event on Thursday. Indeed, the central bank now sees the probability of tightening its monetary conditions (via rate hikes) later in the year (September? December?) vs. previous forecasts that were suggesting this scenario in late 2023.

In the meantime, the dollar is expected to keep the cautious note unchanged ahead of the key Nonfarm Payrolls figures and the Unemployment Rate due later in the NA session. Consensus expects the economy to have added “just” 150K jobs in December, weighed by the impact of the Omicron variant.

What to look for around USD

The dollar sank to the vicinity of the 95.00 support at the end of the week, as market participants seemed to still be digesting the more aggressive message from the ECB at Thursday’s gathering. Some reasons behind the strong correction in the buck seen as of late can be found in the improved mood in the risk-associated universe and dormant US yields (despite navigating the upper end of the recent range). However, the constructive outlook for the greenback is expected to remain unchanged in the longer run underpinned by higher yields, persistent elevated inflation, supportive Fedspeak and the solid pace of the US economic recovery.

Key events in the US this week:) Nonfarm Payrolls, Unemployment Rate (Friday).

Eminent issues on the back boiler: Fed’s rate path this year. US-China trade conflict under the Biden administration. Debt ceiling issues. Escalating geopolitical effervescence vs. Russia and China.

US Dollar Index relevant levels

Now, the index is losing 0.04% at 95.31 and a break above 96.08 (55-day SMA) would open the door to 97.44 (2022 high Jan.28) and finally 97.80 (high Jun.30 2020). On the flip side, the next down barrier emerges at 95.13 (weekly low Feb.4) seconded by 95.00 (round level) and then 94.62 (2022 low Jan.14).