DXY seesaws near 102.00 on mixed Fed talks ahead of US inflation

• US Dollar Index remains defensive after snapping two-day downtrend the previous day.
• Mixed Fed talks prod DXY bulls but upbeat yields, mixed sentiment put a floor under the Greenback’s price.
• US trade balance, risk catalysts eyed for intraday directions but major attention will be given to US CPI.

US Dollar Index (DXY) aptly portrays the market’s cautious mood ahead of this week’s US inflation data, especially amid a light calendar and mixed macros. In doing so, the Greenback’s gauge versus the six major currencies makes rounds to 102.00 during early Tuesday’s Asian session.

Apart from the cautious mood ahead of the US Consumer Price Index (CPI) for July, mixed signals from the Federal Reserve (Fed) officials also restrict the DXY moves. However, recently firmer US Treasury bond yields and the looming economic fears on China and Eurozone put a floor under the DXY prices.

On Monday, Fed Governor Michelle Bowman said that additional rate increases will likely be needed to lower inflation back to target. However, the greenback dropped afterward as New York Fed President John C. Williams said he expects that interest rates could begin to come down next year. The policymaker also conveyed hopes of witnessing a slightly higher unemployment rate as the economy cooled.

On the other hand, China’s Ministry of Water Resources cited a stronger response for flooding to Level III in Inner Mongolia, Jilin and Heilongjiang while highlighting the recently escalating fears from typhoon Doksuri. The Reuters news also mentioned that China has a four-tier emergency response system, with Level I being the most urgent.

It should be noted that Sentix Managing Director Patrick Hussy termed Germany as the sick man of the Eurozone while also adding, “The economy in the Eurozone remains in recession mode. There can therefore be no joy about this development.”

While portraying the mood, Wall Street ended Monday on the positive side while probing the US Treasury bond yields as they consolidated Friday’s heavy fall. That said, the benchmark US 10-year Treasury bond yields rose to 4.10% by the press time while the S&P500 Futures remain sidelined near 4,538, struggling to defend the first daily gains in five.

Looking ahead, foreign trade numbers from China and the US may entertain DXY watchers but the US Consumer Price Index (CPI) appears crucial to watch for clear directions as the market’s bets on the Fed’s September rate hike languishes of late.

Technical analysis

As the 50-DMA pierces off the 100-DMA from above, backed by the receding bullish bias of the MACD signals and a steady RSI (14) line, the US Dollar Index (DXY) is likely to remain pressured toward an upward-sloping support line from July 18, close to 101.70 at the latest.