US Dollar Index looks cautious around 101.70 ahead of NFP

• DXY trades without a clear direction near 101.70.
• Activity in US yields remain muted and near Thursday’s close.
• US Nonfarm Payrolls, Unemployment Rate next of note in the docket.

The greenback alternates gains with losses around the 101.70 region when measured by the US Dollar Index (DXY) on Friday.

US Dollar Index remains vigilant ahead of Payrolls

Market participants remain vigilant ahead of the publication of the key May’s Nonfarm Payrolls later on Friday, motivating the index to hover around the 101.70 zone amidst the generalized lack of direction in the global markets.

Activity in the US cash markets show the same performance so far, with yields along the curve looking consolidative in the upper end of the weekly range.

As indicated, Nonfarm Payrolls for the month of May are due later in the NA session seconded by the Unemployment Rate and the ISM Non-Manufacturing. Additionally, the final Services PMI is also due followed by the speech by FOMC’s Governor L.Brainard (permanent voter, centrist).

What to look for around USD

The dollar came under pressure in the past session and returned to the area below the 102.00 mark against a cautious backdrop ahead of the release of May’s labour market figures.

Renewed weakness in the dollar came in response to the rising perception that inflation might have peaked in April, which in turn supports the idea that the Fed may not need to be as aggressive as market participants expect when it comes to raising the Fed Funds rates.

In the meantime, the Fed’s divergence vs. most of its G10 peers coupled with bouts of geopolitical effervescence, higher US yields and a potential “hard landing” of the US economy are all factors still supportive of a stronger dollar in the next months.

Key events in the US this week: Nonfarm Payrolls, Unemployment Rate, Final Services PMI, ISM Non-Manufacturing (Friday).

Eminent issues on the back boiler: Powell’s “softish” landing… what does that mean? 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 retreating 0.01% at 101.72 and faces the next contention at 101.36 (55-day SMA) followed by 101.29 (monthly low May 30) and then 99.81 (weekly low April 21). On the upside, a break above 102.73 (weekly/monthly high June 1) would open the door to 105.00 (2022 high May 13) and finally 105.63 (high December 11 2002).