US Dollar Index struggles to defend the first weekly gain in three ahead of key consumer-centric data

• US Dollar Index holds lower ground after two-day downtrend but stays positive on weekly basis.
• Pre-Fed sentiment keeps DXY bulls hopeful even as downbeat US data, risk-on mood favor bears.
• US Michigan Consumer Sentiment Index, 5-year Inflation Expectations will be important for fresh impulse, risk catalyst are the key.

US Dollar Index (DXY) remains on the back foot around 104.80 during early Friday, following the two-day losing streak. Even so, the greenback’s gauge versus the six major currencies braces for the first weekly gain in three ahead of the key US consumer-centric data.

In doing so, the DXY ignores recently firmer US Treasury bond yields amid downbeat US data. That said, a likely improvement in Sino-American relations and China’s gradual easing of the Zero-Covid policy to favor the US Dollar Index bears. However, the fears emanating from Russia and hopes that the US economic recovery could allow the Federal Reserve (Fed) to remain hawkish in the next week seem to restrict the gauge’s downside.

“China wants stabilized relations with the United States in the short term as it faces domestic economic challenges and push back in Asia to its assertive diplomacy, White House Indo-Pacific coordinator Kurt Campbell said on Thursday,” reported Reuters.

Recently, US Treasury Secretary Janet Yellen said on Thursday that "Recession is not inevitable," while also declining to say whether the dollar had peaked against other currencies.

On the other hand, the benchmark United States 10-year Treasury bond yields recovered from the lowest levels since mid-September but the yield inversion keeps suggesting recession fears and favor the DXY bulls. It should be noted that S&P 500 Futures print mild gains while Wall Street closed positive on Thursday.

On Thursday, US Initial Jobless Claims matched 230K market consensus for the week ended on December 02, versus the upwardly revised 226K prior. Further, the four-week average also printed 230K figure compared to 229K previous readings. Earlier in the week, the US Goods and Services Trade Balance deteriorated to $-78.2 billion versus $-79.1 billion expected and $-73.28 billion prior. Further, the final readings of the Unit Labour for Q3 eased to 2.4% QoQ versus 3.5% first estimations.

Looking forward, the scheduled top-tier readings from China and the United States could entertain DXY traders ahead of the next week’s crucial central bank meetings.

Amond them, China Consumer Price Index (CPI) is expected to repeat 0.1% MoM figure in November but is likely to ease to 1.0% YoY versus 2.0% previous readings. Further, the Producer Price Index (PPI) could decline to -1.5% compared to -1.3% prior during the stated month. Additionally, the preliminary readings of the Michigan Consumer Sentiment Index for December, expected 53.3 versus 56.8 prior, will entertain DXY traders afterward. Also important to watch will be the University of Michigan’s (UoM) 5-year Consumer Inflation Expectations for the said month, 3.0% previous readings.

Technical analysis

A three-week-old descending resistance line, around 105.55 by the press time, holds the key to DXY bull’s entry.