US Dollar Index Price Analysis: Volatility contracts around 101.80 as focus shifts to US S&P PMI

• The US Dollar Index is inside the woods ahead of preliminary US S&P PMI data.
• Wild movements were shown on Thursday after the release of 11^th consecutive higher-than-anticipated jobless claims.
• US labor market conditions are softening consistently due to higher interest rates by the Fed.

The US Dollar Index (DXY) has extended its correction after slipping below the immediate support of 101.80 in the Asian session. The USD Index showed wild movements on Thursday after the release of higher-than-anticipated Initial Jobless Claims for the week ending April 14 and a weak Philadelphia Fed Manufacturing Survey (April).

US Department of Labor reported 11th consecutive higher-than-expected jobless claims against consensus. The economic data said that 245K jobless individuals applied for claims against a consensus and the prior figure of 240K.

No doubt, labor market conditions are softening consistently due to higher interest rates by the Federal Reserve (Fed). However, the street is still anticipating a consecutive 25 basis point (bp) rate hike ahead. As per the CME Fedwatch tool, almost 85% of chances are in favor of interest rates above 5%.

Meanwhile, three consecutive bearish trading sessions by S&P500 is indicating that investors have underpinned the risk aversion theme. The 10-year US Treasury yields have dropped below 3.54%.

On a two-hour scale, the USD Index is consolidating in a wide range of 101.63-102.23, indicating an absence of a critical trigger. A power-pack action is expected after the release of preliminary US S&P PMI data. As per the estimates, the Manufacturing PMI will land at 49.0, lower than the former release of 49.2. The Services PMI is also seen lower at 51.5 against the figure of 52.6 released earlier.

The 20-period Exponential Moving Average (EMA) at 101.85 is overlapping with the asset price, indicating sheer contraction in volatility.

Adding to that, the Relative Strength Index (RSI) (14) is oscillating in the 40.00-60.00 range, signaling that investors are awaiting a critical trigger for a decisive move.

Should the asset breaks decisively above April 17 high at 102.23, bulls will drive the asset toward potential resistances plotted from April 10 and March 24 at 102.76 and 103.36 respectively.

Alternatively, a breakdown of April 05 low at 101.41 will drag the asset to April 14 low at 100.78. A further breakdown will expose the asset to the psychological support of 100.00.

USD Index two-hour chart