US Dollar Index Price Analysis: DXY dips back towards 96.00 as ISM survey highlights easing supply chain snags

• The DXY has dipped back to near the 96.00 level in wake of the latest US data, erasing early gains.
• The latest ISM manufacturing report fell to 58.7 in December from 61.1 driven by a drop in prices paid.

The DXY has dipped into negative territory on the day in recent trade and is probing the 96.00 level in wake of the latest batch of US data. The index, which is a trade-weighted basket of major USD currency pairs, now trades about 0.15% lower on the day and is about 0.4% lower versus its earlier peaks near 96.50.

It’s latest decline has seen it slip back to the south of its 21-day moving average, which currently resides around the 96.20 level and the bears will be eyeing a test of last week’s lows in the 95.50s should the 96.00 level be broken. Support in the form of the 50DMA at 95.65 is notable, which the level having been associated with good buying interest in the recent past.

US data weighs on the DXY

The latest ISM manufacturing report fell to 58.7 in December from 61.1 in November, below the expected 60.0 and its lowest reading since January 2021. The decline was in part driven by a substantial drop in the prices paid subindex, which slumped to 68.2 from 82.4 in a sign of easing supply chain snags. That marked the lowest reading for the index since November 2020 and was the largest MoM drop in the index since March 2020. Elsewhere, the new orders remained robust above 60.0 and the employment index rose to 54.2 from 53.3, its highest reading since April, in a good omen for Friday’s employment report.

Meanwhile, the latest JOLTs report for November showed a fall to 10.562M job openings from more than 11M in October. However, the report showed a rise in quits in high-end, white-collar jobs, as well as in the hospitality sector, which well-known Fed watcher and chief US economist at SGH Macro said was consistent with increasing wage pressure at the higher ends of the employment spectrum.

The headline miss in the JOLTs report coupled with the deflationary signal encapsulated by the sharp drop in the prices paid ISM subindex seem to have been enough to weigh on the DXY intra-day. This may be because traders might interpret the data as indicating the US labour market isn’t as hot as assumed and that inflation may come down sooner rather than later as supply chains problems ease, combining to exert less pressure on the Fed to tighten monetary policy as swiftly.