US Dollar Index aims to extend losses below 109.50 amid a weak forecast for US NFP

• The DXY is expected to display more losses if it declines firmly below 109.50.
• The risk-off tone has faded for a while ahead of US NFP.
• Cues from US ADP employment data indicate a plunge in US NFP data.

The US dollar index (DXY) is looking to extend its losses as a slippage below the immediate support of 109.53, which will drag the asset towards the critical cushion of 109.20. An inventory distribution phase is likely to turn into a breakdown as the risk sentiment rebounded in the late New York session after remaining negative.

Earlier, the asset printed a fresh 19-year high at 109.98 after the release of higher-than-expected US ISM Manufacturing PMI data. The index remained short of hitting the psychological resistance of 110.00 and displayed a loss in upside momentum.

US ISM Manufacturing PMI advanced surprisingly

As interest rates are hiking with immense pace by the Federal Reserve (Fed) and plenty of funds have been squeezed from the market. The corporate sector has inculcated additional filters on investment proposals and has postponed its expansion plans. Therefore, the US ISM Manufacturing PMI was expected to remain vulnerable. However, a surprisingly higher PMI strengthened the DXY. The economic data landed at 52.8, higher than the estimates of 52 and similar to the prior release.

US NFP to remain peculiar

Week’s show stopper event of US Nonfarm Payrolls (NFP) is expected to surprise the market significantly but will also provide a clear picture of the journey ahead. As per the expectations, the US economy has added 300k jobs in August vs. 528k, recorded in July.

Earlier, the US Automatic Data Processing (ADP) reported 132k job additions with the deployment of unconventional methodology for employment scrutiny. Considering the cues from US ADP, a vulnerable performance is expected from the US NFP data ahead.

Key data next week: S&P Global PMI, ISM Services PMI, Goods and Services Trade Balance, and Initial Jobless Claims.

Major events next week: US holiday on September 5, RBA interest rate decision, BOC monetary policy, and ECB interest rate policy.