US Dollar Index bulls approach 110.00 with eyes on Michigan CSI, Fed

• US Dollar Index grinds higher around a one-week-old descending resistance line.
• Hawkish Fed bets, upbeat US data underpin the DXY run-up.
• Risk-negative catalysts also favor the greenback’s safe-haven demand.
• Second-tier US data eyed ahead of next week’s FOMC.

US Dollar Index (DXY) remains on the front foot at around 109.80 as Fed hawks keep the reins, backed by the upbeat US data, during Friday’s Asian session. Also favoring the greenback’s gauge versus the six major currencies are the economic fears surrounding China and Europe.

The market prices in the Fed’s 0.75% and 1.0% rate hikes during the next week’s Federal Open Market Committee (FOMC), as per the CME’s FedWatch Tool. It should be noted, however, that the US 10-year Treasury yields dropped 1.2 basis points to 3.447% after rising 1.38% the previous day, which in turn tests the DXY bulls of late.

On the other hand, US Retail Sales rose 0.3% in August versus 0.0% expected and July’s revised down -0.4%. Further, NY Fed Empire State Manufacturing Index improved to -1.5 in September compared to -31.3 in August and market expectation of -13. Alternatively, Philadelphia Fed Manufacturing Index declined to -9.9 for the said month compared to 2.8 expected and 6.2 prior. Additionally, US Industrial Production slid to -0.2% in August versus a market expectation for an expansion of 0.1% and downwardly revised prior to 0.5%.

Elsewhere, Bloomberg ran a piece suggesting that China is likely to witness harder days than it witnessed in 2020. On the same line was the news surrounding the Sino-American tussles and the People’s Bank of China’s (PBOC) inaction. Elsewhere, fears that the Eurozone will remain in dire conditions despite having a good stock for winter joined hawkish comments from the European Central Bank (ECB) policymakers to keep the pessimism higher.

Amid these plays, Wall Street closed in the red and the US Treasury bond yields were firmer while the S&P 500 Futures drop 0.65% intraday at the latest.

Moving on, preliminary readings of the Michigan Consumer Sentiment Index (CSI), expected 60 versus 58.2 prior, will be crucial for intraday directions. However, major attention will be on the next week’s Fed meeting. It should be observed that the second-tier data from China may also direct the DXY moves considering the latest recession woes surrounding the world’s biggest industrial play, as well as the second-largest economy.

Technical analysis

A clear upside break of the one-week-old descending resistance line, around 109.85 by the press time, appears necessary for the DXY bulls to aim for the recently flashed 20-year high near 110.80.