• US Dollar Index looks set for the biggest weekly gain in seven despite recent inaction.
• Hawkish Fed, risk aversion joins strong US Treasury yields to favor DXY bulls.
• Inflation expectations, mixed data failed to probe buyers.
• Strong NFP appears necessary for bulls to keep the reins.

US Dollar Index (DXY) bulls take a breather around the highest levels in three weeks ahead of the all-important US Nonfarm Payrolls (NFP) on Friday. Even so, the greenback’s gauge versus the six major currencies brace for the biggest weekly jump in seven, also eyeing to snap a two-week downtrend, as it takes rounds to 113.00 by the press time.

Hawkish updates from the US Federal Reserve (Fed) appeared to be the most important catalyst that propelled the DXY of late. Adding strength to the upside momentum were the fears emanating from China, North Korea and Russia, as well as the firmer US Treasury yields.

In doing so, the US Dollar Index paid little heed to the mixed US data and downbeat inflation expectations.

That said, US ISM Services PMI for October dropped to 54.4 from 56.7 prior and 55.5 market consensus. However, the Factory Orders matched 0.3% forecast versus 0.2% upwardly revised previous readings. It should be noted that the US S&P Global Composite PMI and Services PMI got an upward revision from their preliminary readings for the stated month whereas the Initial Jobless Claims eased to 217K for the week ended on October 28 versus 220K expected and 218K prior.

On the other hand, US inflation expectations, as per the 10-year and 5-year breakeven inflation rates per the St. Louis Federal Reserve (FRED) data, dropped to the lowest levels since October 19 and 13 in that order.

Amid these plays, the Wall Street benchmarks closed in the red while the US 10-year Treasury yields refreshed a one-week high to 4.22% before retreating to 4.15%. Notably, the US 2-year bond coupons rose to the highest levels since 2007. That said, the S&P 500 Futures print mild losses while the yields are sidelined at the latest.

Looking forward, DXY may witness further grinding amid a lack of major data/events ahead of the US employment report for October. Forecasts suggest that the headline US NFP could ease to 200K in October from 263K prior while the US Unemployment Rate may increase to 3.6% from 3.5% prior. That said, the downbeat forecasts for the scheduled statistics signal a corrective move in case of a surprise.

Technical analysis

Unless declining back below the 21-DMA immediate support near 112.15, the US Dollar Index is likely approaching the five-week-old resistance line, close to 113.50 at the latest.