DXY bulls attack 103.30 hurdle, focus on China, Fed minutes

• US Dollar Index grinds higher as bulls seek more clues to extend four-day uptrend at monthly high.
• China-inflicted risk aversion, firmer US Retail Sales and fears of credit rating downgrade of major US companies propel DXY.
• Cautious mood ahead of FOMC Minutes prod US Dollar Index bulls at the highest levels in seven weeks.
• Headlines about China growth, second-tier US/China data eyed for immediate directions.

US Dollar Index (DXY) edges higher past 103.00 as bulls keep the reins despite early Asian session inaction on Wednesday. That said, the Greenback’s gauge versus the six major currencies teased bears by falling to 102.80 amid the initial hours of Tuesday’s trading but China-induced risk aversion joined upbeat US data to recall the buyers. It’s worth noting that the anxiety ahead of China’s market opening and the cautious mood before the Federal Open Market Committee’s (FOMC) latest Monetary Policy Meeting Minutes seem to prod the DXY traders of late. Furthermore, hawkish Fed talks are an additional factor supporting the USD Index of late.

Recently, Minneapolis Federal Reserve President Neel Kashkari ruled out talks of policy pivot by citing hot inflation and the uncertainty about the Fed’s progress in taming the same. The policymaker also said that he is not ready to say that the Fed is done raising rates, per Reuters.

Fed’s Kashkari seemed to have followed the upbeat US data while ringing the hawkish bells. On Tuesday, US Retail Sales grew 0.7% MoM in July versus 0.4% expected and 0.3% reported in June (revised from 0.2%). The details suggested that the Core Retail Sales, namely the Retail Sales ex Autos, grew 1.0% versus 0.4% market forecasts whereas the Retail Sales Control Group doubled from 0.5% previous readouts (revised from 0.6%) to 1.0% for the said month.

Further, the US NY Empire State Manufacturing Index slumped to -19.0 from 1.1 prior and -1.0 market forecasts while the US Export Price Index and Import Price Index improved on MoM in July but edged lower on a yearly basis for the said month.

Apart from that, the Analysts at the global rating agency Fitch Ratings told CNBC on Tuesday that the agency could downgrade several big lenders, including JPMorgan, as reported by Reuters, which in turn bolstered the risk aversion and favored the DXY.

Above all, downbeat China data and the People’s Bank of China’s (PBoC) surprise rate cuts renew economic fears about the world’s second-largest economy and propel the US Dollar’s haven demand. The People’s Bank of China (PBOC), surprised markets by lowering the one-year Medium-term Lending Facility (MLF) rate to 2.50% from 2.65% previous and the Standing Lending Facility rates (SLFs), as well as by cutting the Reverse Repo Rate to 1.8% from 1.9% previously. The same joined China’s downbeat July Retail Sales that rose 2.5% YoY vs. 4.8% expected and 3.1% previous, as well as the Industrial Production that came in at 3.7% YoY vs. 4.5% estimated and 4.4% prior, to flag the fears surrounding the Dragon Nation and fuel the DXY.

While portraying the mood, Wall Street closed in the red and the US 10-year Treasury bond yields refreshed the yearly high. It should be noted that the S&P500 Futures remain lackluster by the press time.

Moving on, China’s House Price Index for July and the US housing data, as well as the Industrial Production, may entertain the DXY traders ahead of the Fed Minutes.

Technical analysis

A clear upside break of the downward-sloping resistance line from early March, close to 103.30 at the latest, becomes necessary for the US Dollar Index bulls to keep the reins. That said, the RSI and MACD signals challenge the bulls but the DXY pullback remains elusive unless breaking a one-month-old rising support line surrounding 102.50.