It was a quiet overnight trading session with muted trading volumes in the FX space due to US Independence Day. The US dollar index, the DXY, closed marginally higher at 103.08 (+0.09%).

This morning, the USD edged higher again after China’s Caixin PMI Service and Composite PMI data came in weaker than expected. Following a better read on the Caixin Manufacturing PMI yesterday (50.5 vs 50.4 expected), both the Services (53.9 vs 56.5 expected) and the Composite PMI (52.5 vs 55.1 expected) have disappointed.

The soft PMI numbers are another indication that the Chinese economy is slipping towards a double-dip slowdown and that further stimulus measures are required to reverse the spiral.

Earlier this week, the Chinese currency, the CNY, gained four big figures (+0.75%) against the USD after tumbling -5.5% in the June quarter. Although the CNY is not part of the DXY, it directly influences other currencies in the DXY basket, including the JPY and the CAD, which are easing as I write.

Regarding domestic data that can impact the DXY in the near future, we are looking at three key labour market data points scheduled for release later this week.

What is expected from the JOLTS, ADP Employment Report and NFP?

ADP employment report

• The ADP employment report will be released on Thursday, 06 July, at 10.15 pm AEST
• The ADP report isn’t an exceptionally reliable guide to Non-Farm Payrolls
• Nevertheless, the market expects a 240k rise in June, falling from 278k in May.

JOLTS job openings

• JOLTS job openings are released on Friday, 07 July at 12.00 am AEST
• The market is looking for JOLTS job openings to fall to 9,900k in May from a red-hot rise of 10,103k in April
• Last month’s robust number confirms how tight the labour market still is. Unless some cooling is seen shortly, it will increase the pressure on the Fed to extend its tightening cycle.

NFP

• Non-Farm Payrolls is scheduled for release on Friday night, 07 July, at 10.30 pm AEST
• The market is looking for payrolls to rise by 225k in June, slowing from 339k in May
• The unemployment rate is expected to ease to 3.6% in June from 3.7% in May
• The participation rate is expected to remain unchanged at 62.6%
• Average hourly earnings are expected to rise by 0.3% in June, allowing the annual rate to ease to 4.2% from 4.3%.

DXY technical analysis

During the first half of 2023, the US dollar index, the DXY, tested and held support at 101.00/80 on three separate occasions before bouncing to a high of 104.69 in late May.

While the downside has been well protected near 101.00/80, overhead resistance is firming above 104.00, via the 200-day moving average, currently at 104.73 and the downtrend resistance that connects the March 105.88 high with the May 104.69 high, coming in at 104.30ish.

Should the DXY move towards the range extremes mentioned above, we suspect that it will initially hold. Aware that if they were to break on a sustained basis, it would likely see a test of support at 97.00 on the downside or 106.00 on the topside.

DXY index daily chart