US Dollar Index bears poke five-month low ahead of US NFP

• US Dollar Index remains pressured at multi-day low amid dovish Fed bias.
• Downbeat US data, optimism surrounding China also weigh on DXY.
• Early signals for the US data suggest disappointment from today’s employment numbers.

US Dollar Index (DXY) flirts with the lowest levels since June-end while poking 104.55 during Friday’s Asian session. In doing so, the Greenback’s gauge versus the major six currencies justifies the market’s cautious mood ahead of the key US employment data for November.

That said, the US Dollar Index refreshed the multi-day low while dropping to 104.70 the previous day, around 104.50 at the latest, amid the broad-based weakness in the US Treasury bond yields. Also likely to favor the DXY bears is the optimism for China’s recovery from the Covid woes, as well as mixed US data. Above all, dovish comments from the Federal Reserve (Fed) officials keep DXY bearish.

On Wednesday, US Core Personal Consumption Expenditures (PCE) Price Index, the Federal Reserve’s preferred inflation gauge, matched 5.0% market forecasts on YoY but eased to 0.2% MoM versus 0.3% expected. Further, US ISM Manufacturing PMI for November eased to 49.0 versus 49.7 expected and 50.2 prior.

On the other hand, the consecutive three days of the downtrend of Chinese daily Covid infections from a record high allowed the policymakers to tease the “next stage” in battling the virus while announcing multiple easing of the activity-control measures.

Furthermore, the dovish bias of the Federal Reserve (Fed) Chairman Jerome Powell, as well as downbeat comments from US Treasury Secretary Janet Yellen, initially raised hopes of easy rate hikes.

Following that, Federal Reserve (Fed) Governor Michelle Bowman stated that (It is) appropriate for us to slow the pace of increases. Before him, Fed Governor Jerome Powell also teased the slowing of a rate hike while US Treasury Secretary Yellen also advocated for a soft landing. Further, Vice Chair of supervision, Michael Barr, also said, “We may shift to a slower pace of rate increases at the next meeting.”  It’s worth noting that the recent comments from New York Fed’s John Williams seemed to have tested the US Dollar bears as the policymakers stated that the Fed has a ways to go with rate rises.

Amid these plays, the benchmark US 10-year Treasury bond yields slumped to 3.50% while the two-year counterpart printed 4.23% while poking the lowest levels since October by the press time. However, Wall Street closed mixed but the S&P 500 Futures remain mildly offered by the press time.

Looking forward, headline Nonfarm Payrolls (NFP) is likely to ease with a 200K print versus 261K prior while the Unemployment Rate could remain unchanged at 3.7%. It should be noted that a likely easing in the Average Hourly Earnings for the stated month could also weigh on the DXY.

Technical analysis

A three-month-old descending support line, around 104.50 by the press time, challenges the US Dollar Index bears amid the oversold RSI conditions.