US Dollar Index: Cautious optimism, Fed talks test DXY bulls below 102.00 ahead of US ISM PMI, NFP

• US Dollar Index struggles to defend buyers after two-week uptrend.
• China news allowed markets to begin NFP week on a positive side.
• Fed’s Kashkari flags uptick in unemployment, shows indecision about September rate hike.
• US data will be crucial as FOMC failed to inspire policy hawks and marked data dependency.

US Dollar Index (DXY) remains directionless around 101.70 during early Monday in Asia. In doing so, the greenback’s gauge versus the six major currencies bears the burden of the market’s risk-on mood and mixed concerns about the Federal Reserve (Fed). Also testing the DXY bulls after a two-week uptrend is the cautious mood ahead of this week’s US ISM PMIs for July and the US jobs report for the said month, comprising the headline Nonfarm Payrolls (NFP).

The market’s risk-on mood can be linked to the latest easing in the US inflation clues and expectations of China stimulus. That said, Bloomberg quoted China's State Council Information Office to flag hopes of a fresh stimulus announcement from Beijing by conveying a surprise press conference around 07:00 AM GMT. That said, the scheduled media conference will include China Vice Chairman of the National Development and Reform Commission Li Chunlin and officials from the Ministry of Industry and Information Technology, the Ministry of Commerce and the State Administration for Market Regulation to unveil more measures to boost the consumption, per the news.

Friday’s US data suggests softer prints of the US Federal Reserve’s (Fed) favorite inflation gauge, namely the Core Personal Consumption Expenditure (PCE) Price Index, as it eased to 4.1% YoY for June versus 4.2% expected and 4.6% prior. Further details revealed that the Personal Income softened to 0.3% versus 0.5% expected and previous readings whereas the Personal Spending rose 0.5% from 0.4% market forecasts and 0.1% prior. Additionally, the final readings of the Michigan Consumer Sentiment Index for July eased to 71.6 from the initial estimations of 72.6 while the University of Michigan’s (UoM) 5-year Consumer Inflation Expectations also edged lower to 3.0% from 3.1% expected and prior.

Considering the downbeat US inflation clues, Federal Reserve Bank of Minneapolis President Neel Kashkari flagged fears of job losses and slower growth while praising the inflation outlook. The policymaker also criticized the central bank’s aggressive monetary tightening campaign to tamp down price surges.

It’s worth noting that strong prints of the US Gross Domestic Product (GDP) Annualized for the second quarter (Q2) joined the upbeat figures of the US Durable Goods Orders for June to allow the US Dollar to stay firmer for the second consecutive week. Also likely to have favored the US Dollar, is the European Central Bank’s (ECB) dovish hike and emphasis on the data-dependency of the next rate decision.

While portraying the mood, Wall Street closed positive and the yields retreated together with the US Dollar. Even so, the US Dollar Index (DXY) marked two consecutive weekly gains by the end of Friday’s trading. It’s worth noting that the S&P500 Futures print mild gains by the press time.

Looking ahead, the US ISM PMIs and the risk catalysts can entertain the DXY traders ahead of Friday’s US jobs report for July will be crucial to watch for clear directions.

Technical analysis

Although a clear upside break of a six-month-old horizontal support area surrounding 100.80 joins recently firmer oscillators to favor the US Dollar Index (DXY) buyers, recovery remains elusive beneath two-month-old falling resistance line, close to 102.50 by the press time.