DXY renews six-week high around mid-103.00s as Fed Minutes flag inflation woes

• US Dollar Index seesaws around 1.5-month high after refreshing multi-day top post Fed Minutes.
• FOMC Minutes suggest that ‘most’ policymakers prioritize the battle against inflation.
• Global economic fears, upbeat Treasury bond yields also favored DXY bulls.
• Light calendar may allow Greenback to pare recent gains as it approaches key technical resistances.

US Dollar Index (DXY) bulls take a breather after refreshing the six-week high, making rounds to 103.50 amid Thursday’s Asian session, as market players seek more clues to defend the latest run-up. That said, the DXY cheered hawkish Minutes of the Federal Reserve’s (Fed) latest monetary policy meeting, as well as the risk-off mood to print a five-day uptrend by the end of Wednesday’s North American session.

On Wednesday, the Monetary Policy Meeting Minutes of the Federal Open Market Committee’s (FOMC) July 25-26 meeting highlighted the policymakers’ discussion on the inflation pressure, despite marking a division on the rate hike decision. That said, the Minutes also conveyed that most policymakers preferred supporting the battle again the ‘sticky’ inflation.

It should be noted that the recently firmer US data also underpin the hawkish bias about the Federal Reserve’s (Fed) next moves and propel the DXY. That said, the US Industrial Production marked a surprise 1.0% growth for July versus 0.3% expected and -0.8% prior while the Capacity Utilization for the said month also improved to 79.3% from 78.6%, compared to market forecasts of 79.1%. Further, the Building Permits edged higher to 1.442M for July from 1.441M whereas the Housing Starts rose to 1.452M for the said month versus 1.398M prior and 1.448M expected. It’s worth noting that both the Building Permits Change and Housing Starts Change improved more than market forecasts and previous readings. Previously, the US Retail Sales grew 0.7% MoM in July versus 0.4% expected and 0.3% reported in June (revised from 0.2%) and suggested strong consumer spending, mainly due to improved wages, which in turn favored the Greenback to stay firmer during early weekdays.

On a different page, fears emanating from China also underpin the US Dollar’s haven demand. That said, Chinese policymakers have been trying by all means to defy the concerns about easing economic recovery but no meaningful market reaction has been witnessed of late, which in turn flags concerns about the recession of the world’s second-largest economy and weighs on the sentiment.

Furthermore, global rating agency Fitch Ratings lowered medium-term Gross Domestic Product (GDP) projections for 10 developed economies in its quarterly Global Economic Outlook, which in turn spoiled the risk appetite and favor the DXY bulls.

While portraying the mood, Wall Street closed in the red while the US 10-year Treasury bond yields refreshed the yearly top to 4.278%.

Looking forward, a light calendar requires the traders to observe headlines surrounding China’s economic growth, as well as the Fed talks, for clear directions. Also important will be the US weekly jobless claims and Philadelphia Fed Manufacturing Survey for August.

Technical analysis

Although a clear upside break of the 200-DMA, around 103.20 by the press time, keeps the US Dollar Index buyers hopeful, overbought RSI may join a 5.5-month-old descending resistance line, close to 103.65 at the latest, to prod the DXY bulls. Following that, a rising trend line from June 14 surrounding 103.85 will precede the 104.00 round figure to challenge the upside momentum.