US Dollar Index retreats from multi-year high on cautious optimism ahead of US Retail Sales

• US Dollar Index eases from the highest levels since September 2002.
• Easing yield curve inversion, mixed Fedspeak and US data allowed bulls to take a breather.
• US Retail Sales will be important amid inflation woes.
• Fed policymakers’ comments should be watched carefully as they head to pre-FOMC blackout period.

US Dollar Index (DXY) bulls take a breather after refreshing the 19-year high, struggling to regain traction around 108.65 during Friday’s Asian session.

The greenback’s gauge versus the six major currencies rallied to the multi-year high amid fears of recession and concerns surrounding the Fed’s aggressive rate hikes. However, recently mixed Fedspeak and US data triggered the quote’s pullback the previous day.

Among the key Fed speakers who tried to talk down the odds of higher rates was St. Louis Federal Reserve President James Bullard and Federal Reserve Governor Christopher Waller. That said, Fed’s Bullard said, "So far, we've framed this mostly as 50 versus 75 at this meeting." On the same line, Fed’s Waller mentioned that markets may have gotten ahead of themselves by pricing a 100 basis points rate hike in July, as reported by Reuters. It should be noted that the Fed policymakers head to a blackout period from this weekend ahead of late July Federal Open Market Committee (FOMC).

Elsewhere, the US Bureau of Labor Statistics mentioned that the Producer Price Index (PPI) for final demand in the US climbed to 11.3% on a yearly basis in June from 10.9% in May. This print surpassed the market expectation of 10.7%. Additionally, there were 244,000 Initial Jobless Claims in the week ending July 9 versus the previous week's print of 235,000 and market expectation of 235,000. The Weekly Jobless Claims were the highest in five months.

It should be noted that the easing difference between the 2-year and the 10-year US Treasury yields also probed DXY bulls the previous day. That said, the US 10-year Treasury yields ended Thursday around 2.95%, up 0.95% intraday, whereas the 2-year bond coupon dropped 0.75% to 3.12% at the latest. With this, the difference between the near-term and the longer-term bond coupons declined to 17 basis points (bps) versus 23 bps inversion on Tuesday.

Amid these plays, the Wall Street benchmark closed mixed and the S&P 500 Futures also print mild gains by the press time.

Moving on, US Retail Sales, expected 0.8% MoM in June from -0.3% marked in May, will be important to watch while keeping eyes on the Fed speakers for fresh impulse. Following that, preliminary readings of the Michigan Consumer Sentiment Index (CSI) for July, expected 49.9 versus 50.0 prior, should also be eyed for clear directions.

Technical analysis

A fortnight-old bullish channel restricts short-term DXY moves between 108.30 and 109.80.