DXY: US dollar index slides ahead of June nonfarm payrolls data

DXY: US dollar index slides ahead of June nonfarm payrolls data
Written by:
Crispus Nyaga
1st July, 15:17
  • The US dollar index pared back earlier gains as investors reacted to the upbeat manufacturing PMI data.
  • The US manufacturing PMI rose to 52.6 in June as more states started to reopen.
  • Focus now shifts to the nonfarm payrolls numbers that will come out tomorrow.
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The US dollar index (DXY) reversed its earlier gains as traders reacted to the strong manufacturing PMI data. The index is trading at $97.10, which is slightly below the intraday high of $97.65.

US dollar index
US dollar index declines ahead of NFP data

US manufacturing PMI rises

The manufacturing sector in the United States was upbeat in June as the country reopened. According to the Institute for Supplies Management (ISM), the manufacturing PMI rose to 52.6 in June. That was better than the 49.5 that analysts were expecting. It was also better than the previous month’s 43.1 and was the best reading in almost a year. Besides, it was the second straight month of expansion.

Most constituents of the PMI rose. New orders increased to 56.4%, a 24.6% increase from the previous month. The production index rose by 24.1% to 57.3% while backlogs increased by 7.1%. The same increase was seen in the employment index. But the supplier delivery index fell by 11.1%, which is a positive sign of the economy. In a statement, the ISM said:

“June signifies manufacturing entering an expected expansion cycle after the disruption caused by the coronavirus pandemic. Comments from the panel were positive (1.3 positive comments for every one cautious comment), reversing the cautious trend which began in March.”

The US is not the only country seeing an improvement in the manufacturing sector. Earlier today, manufacturing PMI from Australia, China, the UK, Japan, and eurozone showed that activity was rebounding. For example, the Chinese PMI data rose to 52.1, the second consecutive month in the expansion zone.

US dollar index falls ahead of NFP data

Earlier in the day, the US dollar index had risen in reaction to shocking statement from Anthony Fauci. Yesterday, he said that he expected the daily infections in the United States to start rising by about 100,000 per day unless states started to act. As a result, more states have started rolling back their previous reopening plans.

Similarly, in a testimony to congress yesterday, Jerome Powell warned of the risks presented by the “second outbreak.” All this means that the Fed could be forced to intervene by possibly accelerating quantitative easing and taking interest rates negative.

Meanwhile, the US dollar index is falling ahead of the nonfarm payrolls numbers, which will be released tomorrow. Analysts polled by Reuters expect the economy added 3 million jobs in June, after adding 2.5 million in the previous month.

Earlier today, data from ADP showed that private companies added more than 2.36 million jobs in June. They also expect the unemployment rate to drop to 12.3% from the previous 13.3%.

US dollar index technical analysis

US dollar index
US dollar index technical outlook

The US dollar index declined to an intraday low of 97.00. On the daily chart, the price is below the 50-day and 100-day exponential moving averages. It is also above 95.72, the lowest level in June. Most importantly, the DXY has formed an equidistant ascending channel, which appears like a bearish flag.

Therefore, a move below 97.00 will be a sign that the price will continue falling. This is an important psychological price that is also along the lower side of the channel.

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