US Dollar Index: DXY steadies above 101.00 amid pre-Fed anxiety, Powell’s speech, risk catalysts eyed

• US Dollar Index picks up bids to reverse the previous day’s retreat from two-week high.
• Pre-Fed consolidation allows DXY to reverse the latest pullback amid mixed concerns.
• Fresh challenges to market sentiment from China put a floor under US Dollar.
• Fed Chair Powell needs to defend hawkish moves, suggest more rate hikes to keep US Dollar firmer.

US Dollar Index (DXY) regains upside momentum after snapping a five-day winning streak near a fortnight high the previous day. In doing so, the DXY picks up bids to 101.32 by the press time.

That said, fresh challenges to the sentiment, mainly surrounding China, as well as due to the cautious mood ahead of the Federal Open Market Committee (FOMC) monetary policy meeting announcements, seem to underpin the DXY recovery. However, a light calendar in Asia and the likely absence of the traders’ action, due to the cautious mood ahead of the Fed and mixed catalysts, seem to prod the US Dollar Index (DXY) traders.

Recently, Reuters reports that US 100-member Senate backed the amendment to the National Defense Authorization Act (NDAA) by 91 to 6. This means that the policymakers back legislation requiring US companies to report investment in China technologies like semiconductors and artificial intelligence (AI). The same renews the US-China tension and prods the sentiment, especially amid the pre-Fed anxiety.

Previously, the upbeat statements from China Communist Party's Politburo meeting and China state planner National Development and Reform Commission (NDRC), signaled more stimulus from Beijing and bolstered the sentiment, which in turn weighed on the US Dollar. On the same line could be the recently downbeat statistics from the major economies which flag the end of the rate hike trajectory at the key central banks.

Elsewhere, International Monetary Fund’s (IMF) upward revision to the global growth forecasts also favored the risk-on mood and prods the DXY bulls. Additionally, Reuters’ news stating China state banks’ defense of the Yuan (CNY), by selling the US Dollar, also seemed to have weighed on the US Dollar.

It should be observed that most US data came in positive but failed to impress the DXY bulls. That said, the US Conference Board (CB) Consumer Confidence jumped to 117.0 for July from 110.10 prior (revised) versus market forecasts of 112.10. The survey details unveiled that the one-year consumer inflation expectations edged lower to 5.7% while the Present Situation Index and  Consumer Expectations Index rose to 160.0 and 88.3 in that orders for the said month. That said, the US Housing Price Index for May reprinted the 0.7% MoM growth compared to analysts’ estimation of 0.2% whereas the S&P/Case-Shiller Home Price Indices also repeated the -1.7% YoY figures for the said month versus -2.2% expected.

While portraying the mood, S&P500 Futures print mild losses even as Wall Street benchmarks closed on the positive side for the second consecutive day. That said, the US 10-year Treasury bond yields rose to the highest levels in three weeks before ending Tuesday’s trading near 3.89%.

To sum up, the mixed sentiment and the pre-Fed consolidation prods the DXY prices and hence the risk catalysts will be crucial to watch for clear directions ahead of the Fed’s verdict. That said, the talks of the US central bank’s 0.25% rate hike are loud and clear and hence the same won’t affect the US Dollar Index much. As a result, comments from Fed Chairman Jerome Powell will be crucial to watch for clear directions.

Technical analysis

Despite the latest defense of the 101.00 psychological magnet, the US Dollar Index (DXY) bulls need validation from the 21-DMA and the previous support line stretched from April, respectively near 101.65 and 101.95.