US Dollar strengthens as markets await Powell speech at Sintra

• The US Dollar is flaring up as the Greenback gains in Asia. 
• Wednesday’s focus will be on Powell speaking in Sintra and some third-grade macro data.
• The US Dollar Index is in the green and pops back above the important threshold of 102.50. 

The US Dollar (USD) flips 180 degrees, booking substantial gains in Asia after the US considers new curbs on AI chip exports to China.. The Greenback is outperforming against the Chinese Yuan at a six-month high and against the Japanese Yen. This translates into substantial gains for the US Dollar Index, which is back above 102.50.

Wednesday’s focus is on US Federal Reserve (Fed) Chairman Jerome Powell, who is set to speak at 13:30 GMT at the European Central Bank’s symposium in Sintra, Portugal. Markets are to get some more insight on the US economy through a small batch of data, Wholesale Inventories and the Goods trade Balance for May. Later, at 20:30 GMT, the US Bank Stress Test report will be interesting to read through. 

Daily digest: US Dollar roars back 

• Reports are coming from Washington that the US Commerce Department is set to close loopholes on AI chip exports to China. 
• At 11:00 GMT, US MBA Mortgage Applications are set to come out. The previous number was at 0.5%, with no expectations pencilled in for the current number.
• Around noon, 12:30 GMT, Goods Trade Balance and Wholesale Inventories are coming in. The Goods Trade Balance stood at a deficit of  $96.1 billion in April. Wholesale Inventories are expected to contract 0.2%, more than the 0.1% decline registered a month earlier. 
• Markets will hear from US Fed Chairman Jerome Powell  at 13:30 GMT as he is set to speak at the ECB’s symposium in Sintra. Markets already moved substantially on Tuesday after the opening remarks from ECB President Christine Lagarde, with the Euro outpacing the US Dollar. 
• The US Treasury is heading to the markets to place a 7-year Note. 
• Asian equities are in the green, with the Chinese Hang Seng Index posting gains for a second consecutive day.. The Japanese Topix is jumping 2%. European equity indices have taken over the positive tone, while US futures are mildly in the red. 
• 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 before the US Congress, though markets remain reluctant to price in that second rate hike.  
• The benchmark 10-year US Treasury bond yield trades at 3.76% and sees yields climbing while bond prices fall. Markets are further unwinding their safe haven holdings.

US Dollar Index technical anlysis: US lashes out to China on AI

The US Dollar trades in a very dispersed and extreme manner as most notable performances are against the Chinese Yuan and the Japanese Yen, both trading at a six-month low against the Greenback. Biggest loser of the day is the New Zealand Dollar, which is losing over 1% against the US Dollar. This values the US Dollar Index above an important psychological threshold at 102.50, . 

On the upside, the 100-day Simple Moving Average (SMA) briefly touched at 103.04 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 102.63 is being breached again, losing its importance after being chopped up several times last week. As mentioned, 102.50 will be vital to hold from a psychological point of view.  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.