US Dollar Index: DXY ignores softer yields to reclaim 102.00 as sentiment sours on US credit rating cut

• US Dollar Index picks up bids to reverse late Tuesday’s retreat from three-week high.
• Fitch Ratings cuts US government credit rating to AA+ from AAA by citing debt crisis as the key catalyst.
• US Dollar’s haven status, mostly upbeat US data defend DXY bulls even as Fed talks have been downbeat of late.
• US ADP Employment Change, risk catalysts eyed for clear directions.

US Dollar Index (DXY) picks up bids to pare the first daily loss in three at the highest level since early July amid risk aversion. That said, the market’s fears emanating from the US credit rating downgrade join anxiety ahead of the US Automatic Data Processing (ADP) Employment Change, the early signal for Friday’s Nonfarm Payrolls (NFP), to defend the Greenback’s gauge versus the six major currencies.

Global rating giant Fitch Ratings downgrades the US government credit rating from AAA to AA+ while terming fears of the debt crisis as the key catalysts on late Tuesday. Following the announcements, the White House and US Treasury Secretary Janet Yellen rushed to criticize the move and defend the US Dollar but failed of late.

It’s worth noting that the US Treasury bond yields dropped and the US Dollar Index also retreated from a three-week high, marked the previous day, following the US credit rating cut before the risk-off mood triggered the DXY’s latest recovery.

Amid these plays, the US 10-year Treasury bond yield drop 2.5 basis points (bps) to 4.023% while the S&P500 Futures printed 0.40% intraday loss at the latest. It’s worth noting that the Wall Street benchmarks closed mixed on Tuesday.

Apart from the rating downgrade, dovish comments from Atlanta Federal Reserve Bank President Raphael Bostic also initially prod the DXY bulls. That said, Fed’s Bostic rules out the need for a September rate hike while warning of the risk of over-tightening.

Even so, the mostly upbeat US data and the sour sentiment keep the US Dollar Index buyers hopeful. That said, US ISM Manufacturing PMI for July improves to 46.4 from 46.0 prior, versus 46.8 expected. Further details unveil that ISM Manufacturing Employment Index slumped to 44.4 from 48.0 expected and 48.1 prior whereas the ISM Manufacturing Price Paid for the said month rose to 42.6 from 41.8, compared to 42.8 market forecasts. Elsewhere, the US JOLT Job Openings for June also eased to 9.582M compared to 9.62M expected and 9.616M previous readings (revised).

Moving forward, the cautious mood ahead of the US ADP Employment Change may restrict the DXY moves amid a light calendar. That said, the ADP data can prod the US Dollar bulls if matching or decline below the downbeat forecasts of 189K for July versus 497K prior.

Technical analysis

The US Dollar Index’s failure to cross a two-month-old descending resistance line, around 102.40 by the press time, joins nearly overbought RSI conditions to favor the DXY pullback toward a fortnight-old rising support line, near 101.80 at the latest.