US Dollar Muted Following Miss On ISM Services PMI, NFPs Eyed

The Institute of Supply Management (ISM) just released monthly PMI data on the US services sector. According to the DailyFX Economic Calendar, the headline ISM Services Index came in at 62.7 for April. This is slightly below market forecasts looking for a print of 64.1 and highlights a deceleration in services business activity growth from a reading of 63.7 reported last month. The US Dollar is having an overall muted reaction to the latest ISM Services PMI with the broader DXY Index little changed on the session around the 91.30-price level at the time of writing.

DXY – US DOLLAR INDEX PRICE CHART: DAILY TIME FRAME (28 APRIL TO 05 MAY 2021)

DXY Index Price Chart US Dollar Forecast

Chart by @RichDvorakFX created using TradingView

The softer-than-expected reading on headline services PMI data follows a miss on monthly private sector payrolls data released by ADP earlier in the session. This might keep Fed taper talks at bay and create headwinds for the broader US Dollar in turn. That said, inflation fears have been building and were highlighted in the latest PMI report. The prices index subcomponent of the Services PMI climbed to 76.8, which is 2.8 percentage points higher than March’s figure, and also marks the highest reading since July 2008. Judging by the bond market, however, there seems to be little concern about out-of-control inflation considering the ten-year Treasury yield still hangs around 160-basis points.

Zooming in on an hourly chart of the DXY Index, we can see that the US Dollar could be developing an ascending triangle pattern. US Dollar bulls must first overcome daunting technical resistance posed by the 91.40-price level. I noted in yesterday’s US Dollar forecast that eclipsing this barrier could open up the door to have a look at the 50-day simple moving average. On the other hand, breaching the positively sloped trendline extended through the recent string of higher lows could suggest US Dollar bears are wrestling back control and possibly leave the DXY Index vulnerable to a deeper pullback. Perhaps watching the generally strong positive relationship between the DXY Index and Treasury yields may serve as a useful gauge to where the US Dollar heads next.

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