US Dollar braces for chunky data batch and Polish central bank

• A chunky batch of economic data will move markets together with a stressful Polish central bank meeting.
• Focal point this week is US Nonfarm Payrolls on Friday.  
• US Dollar Index breaks above 107 and prints 11-month high. 

The US Dollar (USD) is gearing up for a very nervous trading day, while the US Dollar Index (DXY) resides near the high of the past 48 weeks. Expect to see a pick up in volatility as a big batch of data points is due to come out. Even more importantly, the Polish central bank is due to issue its next rate decision on Wednesday, and it promises to be a wild one.

Traders can also dig into the ADP Employment Change numbers. Although any correlation with the US Nonfarm Payrolls numbers on Friday is non-existent, market participants will remain looking for clues and indications that help them predict the outcome of Friday’s number. After the ADP numbers, the Institute of Supply Management (ISM) will issue its data points for the service sector for the month of September. 

Daily digest: US Dollar enters rough patch

• At 11:00 GMT the Mortgage Bankers Association (MBA) has issued the weekly Mortgage Applications figure for the end of September. The previous week saw a decline of -1.3% and for the last week of September declined even further by -6.0%.
• Around 12:15 GMT, the ADP Employment Change for September will be issued. The previous number came out at 177,000 and is expected to decline to 153,000.
• Near 13:45 GMT, S&P Global’s Purchasing Managers Index (PMI) will be issued for both the Services sector and the Composite for the month of September: Services PMI is expected to stay stable at 50.2. The Composite is to remain unchanged at 50.1.
• Data from the ISM arrives at 14:00 GMT for the month of September. The Services Employment Index was at 54.7 last time around with no forecast pencilled in. New Orders Index was 54.7 with no forecast foreseen. Services PMI is expected to head from 54.5 to 53.6. The Prices Paid Index was at 58.9, though no forecast was given.
• Additionally at that time, the Factory Orders for August are due to come in, jumping higher from -2.1% to 0.3%.
• Be on the lookout for sudden shocks in the forex space as the Polish Central Bank (NBP) will issue its rate decision between 13:00 and 15:00 GMT. The previous meeting presented a surprise rate cut of 75 basis points and rattled the forex space, triggering substantial moves in several currency crosses. 
• Equities are again throwing in the towel: Asian stocks are all down over 2% across the board. European equities are down over 0.50%, together with US futures. 
• The CME Group FedWatch Tool shows that markets are pricing in a 71.2% chance that the Federal Reserve will keep interest rates unchanged at its meeting in November. That is a touch lower from the 77.5% a week ago.
• The benchmark 10-year US Treasury yield is peaking at 4.83%, printing a new high yet again for the year. The rate differential story is back as a driving force in the US bond market. 

US Dollar Index technical analysis: Can the DXY deal with volatility?

The US Dollar Index looks to hit the pause button for a day as traders brace for a pick up in volatility. The big batch of data will play a pivotal point. Next to that, the Relative Strength Index (RSI) is trading again firmly into overbought territory, which could limit any further upside moves in the DXY for the remaining days this week. 

The US Dollar Index opened around 107.24, though the overheated Relative Strength Index (RSI) is acting as a cap now that it is trading in an overbought regime. With 107.19 – the high of November 30, 2022 –  being tested as we speak, it will be important to see if DXY can get a daily close above that level. If that is the case, 109.30 is the next level to watch. 

On the downside, the recent resistance at 105.88 should be seen as first support. Still, that barrier has just been broken to the upside, so it isn’t likely to be strong. Instead, look for 105.12 to do the trick and keep the DXY above 105.00.