US Dollar struggles as China dumps US treasuries in September sell-off

• The Greenback sees yields pushing higher, with T-notes near 5%. 
• Investors focus on Fed Chairman Jerome Powell’s speech later on Thursday. 
• The US Dollar Index looks broken with no clear sense of direction.

The US Dollar (USD) is becoming a minefield as the clear picture for the Greenback is becoming very tainted. The visit from US President Joe Biden in Israel has not played out as the White House wanted to, with an in person meeting with the Jordan Crown Prince Abdullah II bin Al-Hussein cancelled just hours before the US President touched ground in Tel Aviv. Meanwhile, the rate differential between the US is going rouge, but not for good reasons: China and Japan have sold billions of US holdings in September. Amidst all this, the US macroeconomic data  points to an economy that is starting to retreat from the best performance, making traders wonder if a recession is coming. 

On the data front, traders will focus on the US Federal Reserve (Fed) Chairman Jerome Powell comments at his speech in the New York Economic Club. Where last week a few Fed members suggested the central bank is done hiking, some hawkish comments on Thursday show no unanimity on the current stance from the board, which means that Powell will likely refrain from making bold statements and will leave traders clueless. 

Daily digest: US Dollar gets ugly

• The calendar this Thursday starts at 12:30 GMT with the weekly Jobless Claims: Initial Claims are expected to head from 209,000 to 212,000. Continuing Claims are set to head from 1,702,000 to 1,710,000.
• Also at 12:30 GMT, the monthly Philadelphia Fed Manufacturing Survey is due for the month of October. Expectation is that there will still signal a contraction in the region’s manufacturing activity, but less severe than in September, from -13.5 to -6.6.
• Existing Home Sales data for September are due at 14:00 GMT. Sales are expected to fall from 4.04 million units to 3.89 million. 
• All eyes are on US Fed Chairman Jerome Powell, due to speak near 16:00 GMT in the New York Economic Club. 
• A big slew of Fed speakers will take the stage as well later this Thursday: Chicago Fed President Austan Goolsbee is due to speak at 17:20 GMT. Near 20:00 GMT, Atlanta Fed President Raphael Bostic is due to speak. Philadelphia Fed President Patrick Harker is speaking at 21:30 GMT. To round off, Dallas Fed President Lorie Logan is due to speak at 23:00 GMT.
• Equities are taking a turn for the worse as Elon Musk mentioned during an earnings call from Tesla that elevated rates are starting to hurt demand. Meanwhile, the big Chinese real-estate company Country Garden missed a payment on an USD bond. All equities in Asia are down over 2%, while European equities are losing around 0.50% and US Futures are overall down by a quarter percentage point. 
• The CME Group’s FedWatch Tool shows that markets are pricing in a 93.9% chance that the Federal Reserve will keep interest rates unchanged at its meeting in November. 
• The benchmark 10-year US Treasury yield rises to 4.96% as the bond market is shaken up by the surprise massive bond sales from China and Japan, amounting to $118 billion for September alone.  

US Dollar Index technical analysis: Overvalued for wrong reasons?

The US Dollar is entering the twilight zone where it might start to hurt. The US Dollar Index (DXY) is starting to float, not really breaking out in any upside or downside sense. The fact that the US 10-year rates are starting to hit 5% is a sign on the wall, as often 5% accounts as a psychological barrier where an economy might start to struggle to meet up with its funding needs. 

A bounce above the daily trendline from July 18 might still materialise, although this level is starting to slip further away. On the topside, 107.19 is an important level to reach. If this is the case, 109.30 is the next level to watch. 

On the downside, the recent resistance at 105.88 did not do a good job supporting any downturn. Instead, look for 105.12 to keep the DXY above 105.00. If that fails to do the trick, 104.33 will be the best level to look for resurgence in US Dollar strength, with the 55-day Simple Moving Average (SMA) as a support level.