US Dollar Index: DXY bulls take a breather around 103.00 as Fed Chair Powell’s speech looms

• US Dollar Index struggles to defend two-day rebound from the lowest levels since April 2022.
• Strong US employment data, fears surrounding China joined BOE/ECB play to underpin DXY rebound.
• Lack of major data/events, cautious mood ahead of Fed Chair Powell’s appearance probe US Dollar bulls.

US Dollar Index (DXY) stays defensive above 103.00 as bulls await more clues to extend the two-day recovery from the lowest levels since April 2022.

In doing so, the greenback’s gauge versus the six major currencies justifies the lack of major data/events to consolidate the latest upside. That said, the strong US jobs report and geopolitical fears surrounding China allowed the DXY to trigger the much-awaited rebound.

It’s worth noting that the US Bureau of Labor Statistics (BLS) surprised markets by revealing that the Nonfarm Payrolls (NFP) rose by 517K in January, versus 185K expected and 260K (upwardly revised) prior. It’s worth noting that the Unemployment Rate also dropped to 3.4% from 3.5% prior and 3.6% expected but the Average Hourly Earnings eased during the stated month.

The rebound in the US ISM Services PMI from 49.2 to 55.2, versus 50.4 expected, also underpinned the rebound in the United States Treasury bond yields and the US Dollar. That said, the benchmark US 10-year Treasury bond yields jumped the most since late September 2022 to regain 3.52% level by the volatile week’s end.

Additionally, the recent fears surrounding the US and China ahead of this week’s US diplomat visit to China also weigh on the market’s risk appetite. “A US military fighter jet shot down a suspected Chinese spy balloon off the coast of South Carolina on Saturday, a week after it first entered US airspace and triggered a dramatic -- and public -- spying saga that worsened Sino-US relations,” said Reuters.

Against this backdrop, US 10-year Treasury bond yields remain firmer around 3.55% while the S&P 500 Futures print mild losses by the press time.

Moving on, Tuesday’s speech from Federal Reserve (Fed) Chairman Jerome Powel and Friday’s US UoM Consumer Sentiment Index for February, as well as the University of Michigan's 5-year Consumer Inflation expectations, will be crucial for fresh impulse. Should Fed Chair Powell praise the recent hawkish signals from the US data, the DXY could extend the latest recovery.

Technical analysis

Clear upside break of a three-month-old descending resistance line, now support around 101.95, directs DXY bulls towards a downward-sloping trend line resistance from late November 2022, close to 104.00 at the latest.