US Dollar Index off 2020 highs, near 98.40 ahead of NFP

• DXY comes under pressure near 98.60, YTD highs.
• US-China trade, coronavirus remain in centre stage.
• US January’s Non-farm Payrolls will be the salient event.

The greenback, measured by the US Dollar Index (DXY), has returned to the 97.40/45 band on Friday after hitting new 2020 peaks near 98.60 in the previous session.

US Dollar Index focused on trade, data

The index is struggling for direction at the end of the week following four consecutive daily advances, including Thursday’s move to fresh yearly tops in the vicinity of 98.60.

Positive news from the US-China trade front in combination with still alleviated concerns around the Wuhan coronavirus kept sustaining the better mood in the riskier assets and favouring the selling bias in bonds and other safe havens.

Later today, all the attention will be on the monthly report on the US labour market, where the economy is expected to have added more than 160K jobs during last month and the unemployment rate is seen at multi-decade lows at 3.5%.

What to look for around USD

The index extended the rally to the boundaries of 98.60, or new 2020 highs, where it seems to have entered into a ‘pause mode’ ahead of January’s payrolls due later on Friday. In the meantime, the current environment remains favourable to the risk-on sentiment and stays supported by auspicious headlines from the US-China trade scenario and renewed optimism surrounding the Wuhan coronavirus. Following the neutral/dovish message from the FOMC, investors keep looking to US fundamentals and the broader risk appetite trends for direction. While above the 200-day SMA the constructive view on the dollar should remain unaltered and further underpinned by the current ‘wait-and-see’ stance from the Fed vs. the broad-based dovish view from its G10 peers, positive results from the US fundamentals, the dollar’s safe haven appeal and its status of ‘global reserve currency’.

US Dollar Index relevant levels

At the moment, the index is losing 0.03% at 98.45 and faces the next support at 97.87 (68.2% Fibo of the 2017-2018 drop) followed by 97.72 (200-day SMA) and then 97.35 (weekly low Jan.31). On the upside, a break above 98.57 (2020 high Feb.6.) would aim for 98.93 (high Aug.1 2019) and finally 99.37 (high Sep.3 2019).