US Dollar Index: DXY licks its wounds near 100.00 amid Fed blackout, mixed sentiment

• US Dollar Index stays defensive after bouncing off 15-month low.
• Friday’s US data, previous Fed talks prod concerns about US central bank’s policy pivot, putting a floor under DXY price.
• China-linked headlines, pre-Fed blackout weigh on sentiment and allow US Dollar to pare recent losses.
• NY Empire State Manufacturing Index, US Retail Sales eyed for further directions, risk catalysts are the key.

US Dollar Index (DXY) remains sidelined near 99.90-95 as it struggles to defend the previous day’s corrective bounce off the lowest levels since April 2022 amid Monday’s sluggish Asian session. In doing so, the US Dollar’s gauge versus the six major currencies takes a breather after posting the biggest weekly loss since November 2022.

That said, downbeat prints of the US inflation clues drowned the DXY in the last week before the previous day’s US data put a floor under the greenback’s gauge. Adding strength to the corrective bounce were the fears about China and the International Monetary Fund’s (IMF) statements suggesting inflation woes.

On Friday, the preliminary reading of the University of Michigan's (UoM) Consumer Confidence Index rose to 72.6 from 64.4 in June, versus the market’s expectations of 65.5. Further details suggested that the one-year and 5-year consumer inflation expectations per the UoM survey edged higher to 3.4% and 3.1% in that order versus 3.3% and 3% respective priors. Before that, the US Consumer Price Index (CPI) and Producer Price Index (PPI) for June dropped to 3.0% and 0.1% on a yearly basis from 4.0% and 0.9% YoY in that order, which in turn drowned the US Dollar and propelled the EUR/USD pair toward the highest level since February 2022.

On the other hand, the International Monetary Fund (IMF) cited the fears of short-term firmer inflation clues to underpin the US Dollar Index rebound from the multi-month low. Adding strength to the DXY’s corrective bounce are the fears surrounding the US-China tension, flagged by comments from New Zealand Prime Minister (NZ) Chris Hipkins and US Treasury Secretary Janet Yellen.

It should be noted that the fears of witnessing China’s downbeat economic recovery, per the initial forecasts of the top-tier China data, also weigh on the sentiment and put a floor under the DXY price.

Amid these plays, the S&P500 Futures print mild losses whereas the US Treasury bond yields remain sidelined amid Japan’s holiday.

Moving on, China’s second quarter (Q2) 2023 Gross Domestic Product (GDP) data will be crucial to determine short-term DXY moves ahead of the US Retail Sales for June, up for publishing on Wednesday. It should be observed that the US NY Empire State Manufacturing Index for June will also determine intraday moves of the US Dollar Index, apart from China data and the risk catalysts.

Technical analysis

A horizontal area comprising levels marked in March-April 2022, near 99.60-40, appears a tough nut to crack for the US Dollar Index (DXY) bears amid an oversold RSI (14). The likely corrective bounce, however, remains elusive unless providing a daily closing beyond April’s low of near 100.80.