US Dollar Index: DXY edges higher past 104.00 as markets reassess Fed bets

• US Dollar Index picks up bids to reverse previous weekly loss amid sluggish session.
• Increasing odds of Fed rate hike in July joins bond market moves, softer rival currencies to propel DXY.
• US trade numbers, risk catalysts are the key for clear directions.

US Dollar Index (DXY) consolidates the previous weekly losses with mild gains around 104.15 amid an inactive Asian session on Wednesday. Adding strength to the greenback’s gauge versus the six major currencies is the sluggish markets and the US policymakers’ ability to avoid the ‘catastrophic’ default. The same increased bond market moves and fuels the odds of a rate hike by the Federal Reserve (Fed) in July, if not in June.

That said, a resolution to the United States default fears propelled bond offerings from the government but marked a mixed response on the yields as the 10-year coupons remain sluggish at around 3.69% whereas the two-year counterparts rose a bit to 4.50%. It should be noted that the US Treasury increased bond sales by around $42 billion at the latest due to the debt-ceiling extension bill.

With this in mind, Reuters said, "Fed funds futures traders see the Fed as likely to then resume rate increases, with a 65% chance of an at least 25 basis-point increase in July, according to the CME Group's FedWatch Tool." It’s worth mentioning that the interest rate futures show a nearly 15% probability of a June rate hike. The reason could be linked to downbeat United States activity data released on Monday, as well as the previously dovish comments from the Federal Reserve (Fed) Officials ahead of the pre-Fed blackout.

It’s worth noting that the ex-Fed Vice Chairman Richard Clarida mentioned on Tuesday that one or two Fed rate hikes ahead is a close call.

Elsewhere, the downbeat performance of the Euro and the Cable, due to disappointing economic performances, allow the US Dollar to grind higher as traders rush to risk safety.

Against this backdrop, S&P500 Futures grind higher as the technology stocks remained firmer but the manufacturing ones weighed on the sentiment and pared Wall Street’s gains. Even so, the US equities closed with minor gains.

Looking forward, a light calendar and the absence of the Fed policymakers' speeches highlight risk catalysts as the key to watching for clear directions.

Technical analysis

US Dollar Index bulls appear to run out of steam amid a looming bear cross on the MACD and above 50.0 RSI conditions. However, a clear downside break of the 200-day Exponential Moving Average (EMA), near 103.85 at the latest, becomes necessary for the DXY sellers to retake control.