US Dollar Index retreat to 107.00 as recession fears ebb, focus on NFP

• DXY retains the previous day’s pullback from 20-year high.
• Softer chatters over economic slowdown, repeated comments from central bankers help trigger risk-on mood.
• Pre-NFP anxiety, headlines from China also contribute to the DXY pullback.

US Dollar Index (DXY) bulls take a breather around the 20-year high as the quote extends the previous day’s pullback to attack 107.00 during Friday’s Asian session. in doing so, the US dollar gauge versus the six major currencies portrays the market’s consolidation ahead of the key US employment data for June.

In addition to the pre-NFP paring of gains, the market players also benefit from the recent improvement in the risk appetite and drag the US dollar down. That said, repeated comments from the major central bankers and efforts to tame recession fears join headlines from China to help improve the mood.

China is up for $220 billion of stimulus with unprecedented bond sales, per Bloomberg. On the same line was news that diplomats from the US and China are up for meeting personally after the latest virtual meeting cited progress in trade talks. With this, Beijing is optimistic that it can help ease the US its inflation problem by solving the supply-chain riddle, the same gained fewer accolades from the experts though.

Fed speakers, CEO of the Federal Reserve Bank of St. Louis. James Bullard stated, per Reuters, “We've got a good chance at a soft landing.” Additionally, Federal Reserve Governor Christopher Waller said inflation is way too high and does not seem to be easing and the Fed has to apply a more restrictive policy.

Mixed data from the US also weighed on the DXY as US Initial Jobless Claims rose by 4,000 to 235,000 in the week ending July 2, versus 230,000 expected. With this, the 4-week moving average number was 232,500, up 750 from the previous week's average. Further, the US goods and services deficit narrowed by $1.1 billion to $85.5 billion in May, marking the smallest monthly deficit in 2022.

Against this backdrop, the US Treasury yields regain upside momentum and the Wall Street benchmarks closed with gains. However, the S&P 500 Futures print mild losses by the press time.

Technical analysis

Doji candlestick at the multi-year high joins overbought RSI conditions to challenge DXY bulls. The pullback, however, remains elusive until breaking the previous resistance line from May 13, close to 106.30 by the press time.