US Dollar Index bears take a pause at the monthly low of 105.80, with US NFP on the horizon

During Monday's Asian session, the US Dollar Index (DXY) halted its three-day slump at the monthly bottom, holding lower ground near 105.80. In doing so, the dollar index recoups recent losses despite the market's modestly bearish mood and cautious sentiment ahead of July's crucial US jobs data and ISM PMIs.

The US dollar's safe-haven demand was bolstered by the US Federal Reserve's (Fed) hawkish rhetoric and China's recent concerns, as well as by the Fed's preferred inflation gauge's firmer readings.

Even though US House Speaker Nancy Pelosi begins her Asia trip, Taiwan is not mentioned in her itinerary. Beijing's threats may account for the cause. The Financial Times said that "six individuals familiar with the Chinese warnings said they were much tougher than threats Beijing has made in the past when it was upset with U.S. actions or policy on Taiwan" (FT).

The Fed's chosen measure of inflation, the US Core Personal Consumption Expenditures (PCE) Price Index, increased to 4.8% YoY in June from 4.7% in May. In response, Niel Kashkari, president of the Minneapolis Fed, told the New York Times (NYT) that the Fed is still a long way from halting rate rises. The official continued, "A half-point rate increase at the upcoming Fed meetings seems plausible to me."

It should be noted that US Federal Reserve (Fed) Chairman Jerome Powell's remarks emphasizing data-dependency and neutral rates weighed on the DXY throughout the last week.

Wall Street benchmarks reflected the sentiment by applauding the Fed's waning hawkish leaning, but US Treasury rates remained under pressure as traders rushed for risk-free assets due to recession worries. However, as of press time, the S&P 500 Futures are showing slight losses at approximately 4,120, which reflects the negative mood that has recently favored the US currency.

Ahead of the US ISM Services PMI for July, the US ISM Manufacturing PMI for July, which is anticipated to be 52 against 53 previously, might influence immediate DXY swings. China-related Fedspeak and news stories will also be crucial. However, Friday's US Nonfarm Payrolls (NFP) report will get significant attention amid calls for neutral rates and an economic slowdown.

Technical Evaluation

A decisive negative breach of a two-month-old ascending trend line, which is now resistance at 106.85, leads the US Dollar Index bears toward an ascending support line from early February, which was near 104.75 at the time of publication.