US Dollar Index bears attack 101.50 at two-month low, focus on US ISM Services PMI, ADP Employment Change

• US Dollar Index grinds near the lowest levels in two months ahead of the key US data.
• Challenges to the greenback’s reserve currency status, downbeat US data and yields weigh on DXY.
• Geopolitical challenges to sentiment, hawkish Fed talks fail to limit US Dollar’s downside.
• US ISM Services PMI, ADP Employment Change appear the key for intraday directions amid receding hawkish Fed bets.

US Dollar Index (DXY) bears take a breather at a two-month low, also probing the two-day downtrend, as traders await the key US activity and employment data during early Wednesday. In doing so, the greenback’s gauge versus the six major currencies makes rounds to 101.50, fading the late Tuesday’s bounce off a multi-day low of 101.45 by the press time.

DXY bears the burden of downbeat US data and challenges to the greenback’s reserve currency status. Adding strength to the US Dollar’s bearish bias is the latest reduction in the hawkish Federal Reserve (Fed) even if the Fed policymakers suggest more rate hikes.

That said, Bloomberg released a news report suggesting the US Dolllar’s less acceptance as a reserve currency in Russia while highlighting the greenback’s latest weakness. “Chinese Yuan has surpassed the US Dollar as the most traded currency, in monthly trading volume, for the first time in Russia in February,” said the news while also adding that the gap has continued to widen in March. In the last week, Brazil and China agreed to pause the US Dollar’s usage as an intermediary in trade transactions.

On Tuesday, US Factory Orders for February came in -0.7% MoM versus -0.5% expected and downwardly revised -2.1% prior. Further, the US JOLTS Job Openings dropped to the lowest levels since May 2021 while flashing a 9.931M figure for February versus 10.4M expected and 10.563M revised prior.

Talking about the Fed policymakers, Federal Reserve Bank of Cleveland leader Loretta Mester recently cited the need to hike rates above 5% and hold them there for a while.

Elsewhere, geopolitical challenges to the sentiment should have also put a floor under the DXY prices but did not of late. That said, Russian Foreign Minister Sergei Lavrov raised fears of escalating Moscow-Brussels tussle by saying, “The European Union (EU) has "lost" Russia.” The policymaker also added that Moscow will deal with Europe in a tough fashion if need be. The US-China tension is also on the table as Beijing keeps reiterating its dislike for the US-Taiwan ties but Washington seems to ignore it. China’s Consulate General in Los Angeles spokesperson criticized a meeting between Taiwan President Tsai Ing-wen and US House Speaker Kevin McCarthy on early Tuesday.

Amid these plays, Wall Street closed with minor losses but the US Treasury bond yields remain depressed with the benchmark 10-year coupons holding lower grounds near 3.34% after falling in the last five consecutive days. It should be observed that the CME’s FedWatch Tool suggests almost even chances of the US central bank’s 0.25% rate hike in May.

Looking forward, US Dollar Index traders should look out for firmer prints of US ISM Services PMI and ADP Employment Change to pare recent losses and push back the odds of witnessing a fresh Year-To-Date low, currently around 101.00.

Also read: US ADP Jobs/ISM Service PMI Preview: Slowing but still positive

Technical analysis

A one-year-old ascending support line around 101.35 appears the key support for the US Dollar Index bear to watch amid oversold RSI (14). The DXY recovery, however, remains elusive unless the quote stabilizes above the previous support line from January 2022, close to 101.75 by the press time.