US Dollar Index challenges 3-month lows near 96.75

• The index loses further ground following horrible ADP.
• US ADP report posted a 9-year low at 27K jobs in May.
• US ISM Non-manufacturing next on the docket.

The US Dollar Index (DXY), which tracks the buck vs. a bundle of its main rivals, is now losing further ground and is testing the area of 3-month lows near 96.70.

US Dollar Index weaker ahead of ISM

The index has quickly reversed the bullish attempt beyond the 97.00 handle after the US private sector created 27K jobs during last month according to the ADP report, the lowest level in the last 9 years.

The buck fell to fresh multi-week lows in the wake of the ADP release in tandem with a sharp drop in yields of the 2-year note to sub-1.8% levels, area last visited in December 2017, while yields of the 10-year benchmark remain below the 2.10% handle.

Later in the NA session, Markit’s final services PMI is due seconded by the more relevant ISM Non-manufacturing and the EIA weekly report on crude oil inventories. The Fed’s Beige Book is also due, closing the daily calendar.

Additionally, FOMC’s mega-dovish member L.Brainard said the Fed is ready to adjust policy in order to support the economy, while she discarded negative rates as part of the Fed’s toolbox.

What to look for around USD

The greenback is suffering markets’ perception of a potential rate cut by the Federal Reserve in light of the persistent decline of US yields, increasing trade tensions, the inversion of the 3M-10Y yield curve and dovish Fedspeak. In the meantime, trade fears have moved from US-China to US-Mexico following recent Trump’s threats, all adding to the idea that a global slowdown is in the offing. However, the Fed remains patient for the time being, closely watching critical upcoming data releases.

US Dollar Index relevant levels

At the moment, the pair is losing 0.25% at 96.89 and a drop below 96.75 (low Jun.5) would open the door for 96.45 (200-day SMA) and then 95.82 (low Feb.28). On the upside, the next hurdle emerges at 97.37 (55-day SMA) seconded by 98.28 (high May 30) and finally 98.37 (2019 high May 23).