US Dollar Index: DXY steadies at weekly top above 100.00 as sentiment dwindles on China, Fed concerns

• US Dollar Index bulls take a breather at weekly top, prods two-day uptrend.
• Downbeat US housing data renews Fed’s policy pivot chatters and check DXY buyers.
• Receding optimism at equities, fresh fears of US-China tussle also challenge greenback’s upside amid light calendar.
• Mid-tier US data, risk catalysts will be important for fresh clues.

US Dollar Index (DXY) fades recovery from its 15-month top, following a two-day winning streak to refresh the weekly top around 100.55, as market players seek more clues amid a sluggish Asian session on Thursday. That said, the greenback’s gauge versus the six major currencies retreat to 100.25 by the press time.

The DXY previously cheered the hopes of witnessing higher Fed rates for longer, as well as dovish concerns about the European Central Bank (ECB) and the Bank of England (BoE). However, Wednesday’s downbeat US housing data and a reduction in the optimism about the US banks flag doubts about the greenback’s strength even as market players fear the Federal Reserve’s (fed) policy pivot after July.

On Wednesday, the UK inflation growth slumped for June and challenged BoE hawks. Elsewhere, ECB Governing Council member Yannis Stournaras told CGTN Europe on Wednesday that he wasn't sure whether the ECB would hike rates again after a 25 bps increase next week. The policymaker also argued that the inflation is falling adding that further increases of interest rates might damage the economy.

That said, US Building Permits for June marked a contraction of 3.7% versus the previous increase of 5.6% (revised) whereas the Housing Starts also slumped 8.0% for the said period from 15.7% revised prior. It should be observed that the previously released slower growth of the US Retail Sales for June contrasted with promising details to defend the Federal Reserve in keeping the rates higher for longer, as well as help in announcing a 0.25% rate hike in July. The same triggered the US Dollar’s corrective bounce off the 15-month low on Tuesday and helped defend the recovery on Wednesday despite downbeat US housing data.

On a different page, top-tier and regional banks from the US suggest an increase in profits due to higher rates while front-line tech shares also cheered the downbeat yields. However, the fears of higher for longer rates and a lack of major data/events checked the optimists. Additionally, the latest comments from China diplomat and the US preparations for curbing investment and AI chip exports to China renew fears of the Sino-American tussles and weigh on the sentiment, as well as the US Dollar of late.

While portraying the mood, the S&P500 Futures print mild losses whereas the US Treasury bond yields trade mixed at the weekly low.

Looking ahead, the risk catalysts will be crucial to determine short-term DXY moves while the US Initial Jobless Claims and Existing Home Sales will decorate the economic calendar.

Technical analysis

A clear upside break of a two-week-old previous resistance line, now support around 98.90, joins bullish MACD signals to direct the US Dollar Index bulls toward the 10-DMA hurdle of around 100.65. However, the bearish trend remains in place unless the quote manages to stay firmer past April’s low of around 100.80.