US Dollar Index sees downside exhaustion around 105.40, US NFP hogs limelight

• The DXY printed a fresh three-week low around 105.20 as forward demand may drop further.
• Oversold indicators are underpinning the odds of a pullback move.
• The lower consensus for US NFP will keep the DXY on the tenterhooks.

The US dollar index (DXY) is displaying signals of downside exhaustion around 105.40 as momentum indicators are displaying oversold signals on a lower timeframe. The DXY printed a fresh three-week low of 105.24 on Monday after the release of the downbeat US Institute of Supply Management (ISM) Manufacturing New Orders Index data.

Forward demand to remain weak

The US economy managed to report almost flat US ISM Manufacturing PMI data. The economic data landed at 52.8, higher than the estimates of 52 but remained lower than the prior release of 53. Moving to the US ISM Manufacturing New Orders Index, a vulnerable performance has been recorded.

The economic data indicates forward demand by the retailers and producers. The data remained lower than the estimates of 52 and the prior print of 49.2 at 48. A meaningful trim in the demand forecast indicator resulted in a steep fall in the DXY.

US NFP to remain in the spotlight

The US dollar index (DXY) is facing the heat of lower consensus for the US Nonfarm Payrolls (NFP) as the labor market is likely to display addition of 250k jobs in July, lower than the prior release of 372k.

A meaningful drop in the labor market is highly expected as higher interest rates by the Federal Reserve (Fed) have forced the corporate to levy more filters on investment avenues. Lower investment opportunities tend to keep employment generation in check.

 Also, the commentary from big tech firms and automobile companies in their second-quarter earnings announcement on hiring indicated that the recruitment process will remain sluggish for the rest of 2022.

Key data this week: JOLTS Job Openings, Factory Orders, ISM Services PMI, Goods Trade Balance, Initial Jobless Claims, NFP, and Unemployment Rate.

Major events this week: RBA interest rate decision, Fed’s Evans speech, Fed’s Bullard speech, and BOE monetary policy.