US Dollar Index: DXY prods two-day losing streak around 102.50 ahead of Fed Chair Powell’s speech

• US Dollar Index pauses two-day downtrend but lacks recovery momentum amid cautious markets.
• Upbeat US data, China-linked optimism jostle with fresh fears about Sino-American ties to prod DXY bears.
• DXY trader’s preparations for Fed Chair Powell’s speech allow US Dollar Index to consolidate recent losses.
• Risk catalysts need to defend economic optimism, absence of US-China tussle to recall US Dollar Index sellers.

US Dollar Index (DXY) picks up bids to pause the previous two-day losing streak around 102.50 as markets brace for top-tier data/events amid mixed catalysts on early Wednesday.

That said, the economic optimism backed by upbeat US data and the risk-positive headlines from China weigh on the US Dollar. However, the fresh fears surrounding the US-China tension and cautious mood ahead of Federal Reserve (Fed) Chairman Jerome Powell’s speech at the European Central Bank (ECB) Forum in Sintra exert downside pressure on the greenback’s gauge versus the six major currencies.

US President Joe Biden said late Tuesday that China has enormous problems. His comments were joined by the Wall Street Journal (WSJ) news saying, “The Biden administration is considering new restrictions on exports of artificial intelligence chips to China, as concerns rise over the power of the technology in the hands of US rivals, according to people familiar with the situation.” With these headlines, fears of the fresh US-China tussle escalated and put a floor under the US Dollar Index.

On Tuesday, headlines suggesting Asian lobbyists are advocating for easier rules for Chinese equities’ overseas listing and comments from Premier Li Qiang joined the People’s Bank of China’s (PBoC) lower-than-expected fixing of the USD/CNY price to favor the DXY bears. Further, the US Dollar selling by major Chinese state banks, per Reuters, also allowed the Aussie pair to remain firmer.

It should be noted that a slew of the US data allowed the US Dollar to pare intraday losses during late Tuesday but failed to reverse the daily loss of the greenback amid optimism. That said, US Durable Goods Orders marked a surprise growth of 1.7% for May versus -1.0% market forecasts and 1.2% prior (revised). Further, the US Conference Board's (CB) Consumer Confidence Index rose to 109.7 for June from 102.5 in May (revised from 102.3). On the same line, US Housing Price Index rose to 0.7% in April from 0.5% in previous readings (revised), versus the 0.3% expected. Meanwhile, the S&P/Case-Shiller Home Price Index came in as -1.7% YoY for April, down from -1.1% prior but better than -2.6% market forecasts. Additionally, New Home Sales rose 12.2% MoM in May from 3.5% prior and 0.5% anticipated whereas the Richmond Fed Manufacturing Index improved to -7.0 in June compared to -15.0 prior and -10.0 expected.

Amid the aforementioned catalysts, S&P500 Futures print mild losses despite the upbeat performance of Wall Street whereas the US Treasury bond yields grind higher.

Looking forward, headlines surrounding China and the global growth trajectory may entertain the DXY traders ahead of Fed Chair Powell’s key speech at the ECB Forum. “The FOMC is very clear that a period of sub-trend activity may be needed to bring inflation under control and so far, that doesn’t seem to be happening,” said Analysts at the ANZ. The same could join the latest upbeat US data to help Fed’s Powell remain hawkish and propel the DXY bulls.

Technical analysis

US Dollar Index grinds lower between a one-month-old descending resistance line and an upward-sloping support line from mid-April, respectively near 102.90 and 102.00.