US Dollar Index: DXY bears flex muscles below 100.00 ahead of US Retail Sales

• US Dollar Index edges lower after bouncing off 15-month low on Friday, sluggish of late.
• Monday’s US data, cautious optimism weigh on DXY amid pre-FOMC blackout.
• China news, US Retail Sales can tease US Dollar Index bulls at multi-month low.

US Dollar Index (DXY) remains on the back foot around 99.85, taking offers to refresh the intraday low to 99.85. In doing so, the greenback’s gauge versus the six major currencies prints mild losses during early Tuesday, following a failed attempt to extend Friday’s corrective bounce off the lowest level since April 2022.

That said, Monday’s unimpressive US data joined fears about China’s economic recovery and hopes of no major hawkish moves from the Federal Reserve (Fed), backed by the previous week’s downbeat US inflation, to weigh on the DXY amid mixed concerns.

Amid these plays, Wall Street closed with minor gains and the US Treasury bond yields edged lower, which in turn weighed on the US Dollar Index (DXY).

That said, New York (NY) Empire State Manufacturing Index for July eased to 1.1 from 6.6 prior and 0.0 market forecasts. The data failed to inspire the US Dollar Index (DXY) sellers initially before weighing on the DXY, probing Friday’s recovery backed by the upbeat prints of the University of Michigan’s (UoM) Consumer Sentiment Index and consumer inflation expectations for the said month.

Elsewhere, China’s second quarter (Q2) 2023 Gross Domestic Product (GDP) confirmed the market’s fears about slowing recovery in the world’s biggest industrial player, as well as the second biggest economy. The same joined mixed updates about the US-China to put a floor under the DXY price.

On Monday, US Treasury Secretary Janet Yellen said during a Bloomberg interview that the US is looking carefully at outbound investment controls on China while adding, “But they would be focused on a few sectors." The policymaker also clarified that these would not be broad controls that would have a fundamental impact on the investment climate in China. During the weekend, US Treasury Secretary Yellen spoke at a meeting of Group of 20 (G20) finance ministers and central bankers in India while saying, “I am eager to build on the groundwork that we laid in Beijing to mobilize further action.” Hence, the US-China tension is back in the spotlight but the pace of pessimism appears slow and mixed.

To sum up, DXY bears the burden of the market’s dovish concerns about the Fed, despite Friday’s upbeat consumer-centric figures. Also exerting downside pressure on the US Dollar is the Fed policymaker’s blackout ahead of late July’s Federal Open Market Committee (FOMC) Monetary Policy Meeting.

Looking ahead, US Retail Sales for June, expected to rise to 0.5% versus 0.3% prior, will be crucial to watch for clear directions of the Gold Price. Also important will be the US Industrial Production for June, expected -0.1% versus -0.2% prior, as well as the US-China headlines and the bond market moves as Japan returns from a long weekend.

Technical analysis

Monday’s Doji candlestick renews bearish bias about the US Dollar even as the oversold RSI (14) prods the DXY sellers above the recent trough surrounding 99.55. That said, the US Dollar Index recovery needs validation from a downward-sloping resistance line from July 06, close to 100.15 at the latest.