US Dollar Index bears take a breather around monthly low near 105.80, US NFP eyed

• DXY pares losses after two-week downtrend, remains pressured around one-month low.
• Cautious mood ahead of the key data, recent risk negatives underpin the corrective pullback.
• US ISM PMIs, headlines surrounding China may entertain intraday traders.

US Dollar Index (DXY) pauses the three-day downtrend around the monthly low, holding lower grounds near 105.80 during Monday’s Asian session. In doing so, the greenback gauge pares recent losses amid the market’s mildly downbeat mood, as well as cautious sentiment ahead of the key US employment report and ISM PMIs for July.

Firmer prints of the US Federal Reserve’s (Fed) preferred inflation gauge joined hawkish Fedspeak and recent fears from China to underpin the US dollar’s safe-haven demand.

Even if US House Speaker Nancy Pelosi begins her Asia visit, the schedule doesn’t mention Taiwan. The reason could be attributed to Beijing’s warnings. “Six people familiar with the Chinese warnings said they were significantly stronger than the threats that Beijing has made in the past when it was unhappy with US actions or policy on Taiwan,” said the Financial Times (FT).

That said, the US Core Personal Consumption Expenditures (PCE) Price Index, the Fed's preferred gauge of inflation, rose to 4.8% YoY for June versus 4.7% prior. Following that, Minneapolis Fed President Niel Kashkari mentioned to the New York Times (NYT) that the Fed is still a long way away from backing off rate hikes. The policymaker added, “Hiking rates by half a point at coming Fed meetings seems reasonable to me.”

It should be observed that US Federal Reserve (Fed) Chairman Jerome Powell’s comments highlighting data-dependency and neutral rates joined the “technical recession” of the US to weigh on the DXY in the last week.

While portraying the mood, the Wall Street benchmarks cheered the receding hawkish bias from the Fed but the US Treasury yields remained pressured as traders rush for risk safety amid recession fears. However, the S&P 500 Futures print mild losses at around 4,120 by the press time and portrays the sour sentiment, which in turn favors the US dollar of late.

Looking forward, US ISM Manufacturing PMI for July, expected at 52 versus 53 prior, could direct immediate DXY moves ahead of the US ISM Services PMI for the said month. Also important will be the Fedspeak and the headlines surrounding China. However, major attention will be given to Friday’s US Nonfarm Payrolls (NFP) amid calls for neutral rates and economic slowdown.

Technical analysis

A clear downside break of a two-month-old ascending trend line, now resistance around 106.85, directs the US Dollar Index bears toward an upward sloping support line from early February, close to 104.75 by the press time.