US Dollar weakens as China surprises with stronger Yuan fixing

• The US Dollar is retreating against several currencies after the PBoC fixed its Yuan lower.
• Tuesday’s focus is on US Durable Goods Orders,Consumer Confidence data. 
• The US Dollar Index is in the red and ekes out more losses.

The US Dollar (USD) is on the back foot against most pairs on Tuesday after the Chinese central bank, the People's Bank of China (PBoC), fixed the USD/CNH a few figures stronger than expected. This triggered a wave of pressure on the Greenback, particularly against the Canadian Dollar as the USD/CAD pair trades at 1.3125, a six-month low. Polish Zloty, Japanese Yen, Euro, Pound Sterling and Scandinavian coins are all trading in profit against the US Dollar. 

Economic data on Tuesday could bring some turnaround. At 12:30 GMT, Durable Goods Orders data is set to hit the markets with expectations of stagnation or declines on all fronts. Another important number that could influence the Greenback’s performance is the Conference Board’s Consumer Confidence Index for June, which is expected to rise from 102.30 to 104.00, an outcome that should help lift sentiment in the US Dollar. 

Daily digest: US Dollar ready for its first batch of data

• European Central Bank President Christine Lagarde held opening remarks at the ECB’s symposium in Sintra, Portugal. She remained hawkish by saying that it is unlikely that the ECB can say soon that the interest-rate peak has been reached. 
• China’s PBoC fixed the Yuan at 7.2098 instead of 7.2209 estimated. This triggered a spike in Chinese equities and a sharp drop for the Greenback. 
• Durable Goods Orders will be published at 12:30 GMT. Monthly Core Durable Goods, excluding transportation, is expected to jump from -0.2% previous to -0.1% for May. Overall Durable Goods Orders are expected to contract 1% for the month, swinging from a 1.1% expansion in April.
• Moreover, the Redbook Index – which gauges store sales in the US – is due at 12:55 GMT. It increased 0.9% a week earlier.  S&P/Case-Shiller Home Price Indices numbers for the monthly and yearly performance in April will come out at 13:00 GMT. The monthly House Price Index is set to slow from 0.6% to 0.3%.  On a yearly basis, the index is expected to show that prices fell 2.6% in April, more than the 1.1% decline seen in March. 
• At 14:00 GMT, New Home Sales are expected to cool down from 683K to 675K. The Conference Board Consumer Confidence index is expected to jump from 102.30 to 104.00. Traders can also look at the Richmond Fed Manufacturing Index, which should pick up as well from -15 to -10 for June.  Richmond Fed Services Index should be seen tilting up as well, from -10 to 7, as activity picks up again.
• Finally to close this day off in terms of data, at 14:30 GMT the Dallas Fed Services Revenues Index for June is expected to come out a touch softer, from 6.9 to 6.0, and the Texas Services Sector Outlook should move higher from -17.3 but no expectations are forecasted here. 
• The US Treasury set to head to the markets to sell  $43 billion notes of 5-year maturity. 
• No Fed speakers expected. 
• With the jump in Chinese equities, Iron Ore Futures are up 2.4% at sessions’ high level at $825 on the assumption that demand from China could pick up again. 
• Asian equities are having a field day.  The Chinese Hang Seng index is rallying near 2% as the closing bell for that session approaches. Meanwhile, European stock markets have reversed a big part of earlier gains, but are still in the green. 
• The CME Group FedWatch Tool shows that markets are pricing in a 76.9% chance of a 25 basis points (bps) interest-rate hike on July 26th. The certainty of one more hike has increased as US Fed Chairman Jerome Powell remained hawkish in the recent two hearings, though markets remain reluctant to price in that second rate hike.  
• The benchmark 10-year US Treasury bond yield trades at 3.72% and sees yields climbing while bond prices fall. Markets are quickly unwinding their risk bets after the events over the weekend in Russia. 

US Dollar Index technical analysis: PBoC outpaces Greenback

The US Dollar is being tripped by the PBoC move, which  has set back the Greenback against several pairs. The six-month-low against the Canadian Dollar, its northern neighbour, is to be noticed. This filters into the US Dollar Index, which struggles  to find any green counterweights in this weaker US Dollar session. 

On the upside, the 100-day Simple Moving Average (SMA) briefly touched at 103.05 remains as the level to break above and hold. That attempt failed last week, and could demand more conviction from the Greenback in order to head and stay above that level. Once that happens, look for 103.50 as the next key level to the upside. 

On the downside, the 55-day SMA near 102.61 is being breached again, losing its importance after being chopped up several times last week.Rather look for 102.50 to check if it holds support. In case the DXY slips below 102.50, more weakness is expected with a full slide to 102.00 and a retest of June’s low at 101.92.

What is US Dollar Index (DXY)?

The US Dollar Index, also known as DXY or USDX, is a benchmark index that was established by the US Federal Reserve in 1973. DXY is widely used as a tool measuring the US Dollar (USD) value in global markets. The index is calculated by measuring the US Dollar’s performance against a basket of six foreign currencies, the Euro, the Japanese Yen (JPY), Swedish Krona (SEK), the British Pound (GBP), the Swiss Franc (CHF) and the Canadian Dollar (CAD).

With 57.6%, the Euro has the biggest weight in the index followed by the JPY (13.6%), GBP (11.9%), CAD (9.1%), SEK (4.2%), and CHF (3.6%). Hence, a sharp decline in the EUR/USD pair could help the US Dollar Index rise even if the US Dollar weakens against some of the other currencies in the basket.