US Dollar Index: DXY traces firmer yields past 103.00 on hawkish Fed bets, China fears ahead of US data

• US Dollar Index seesaws around weekly top after rising in the last three consecutive days.
• FOMC Minutes confirm July rate hike even as softer US data prods DXY bulls.
• Traders seek solace in US Dollar as yields portray recession fears, China-linked headlines appear grim.
• US ISM Services PMI, ADP Employment Change eyed, risk catalysts are the key for clear directions.

US Dollar Index (DXY) seesaws at the weekly top surrounding 103.40 as market players await the key US data, as well as risk catalysts, to keep the DXY bulls on the board amid an early Asian session on Thursday.

In doing so, the US Dollar Index stays on the front foot after posting a three-day winning streak, mainly backed by the hawkish Federal Reserve (Fed) concerns and Chine-inflicted fears, while ignoring the softer US data.

As per the latest, Federal Open Market Committee (FOMC) Minutes for the June meeting, almost all members agreed to a pause in the rate hike trajectory while some policymakers showed an inclination for a July rate hike of around 0.25%. The same highlights hawkish bias at the US central bank and propel the US Dollar Index.

Elsewhere, downbeat prints of China’s Caixin Services PMI for June, to 53.9 versus 57.1 prior, joined the escalating fears of the US-China tussle amid fresh warnings of further trade restrictions from Beijing to weigh on the sentiment and fuel the DXY. That said, China’s Global Times and former Vice Commerce Minister flagged hardships for the US IT companies, as well as metal players. Earlier on Wednesday, China announced abrupt controls on exports of some gallium and germanium products, effective from August 1. The dragon nation’s latest retaliation is in reaction to the US curb on AI chips’ shipments to Beijing.

It should be noted that a jump in Chinese investor buying Hong Kong and Macau wealth products join pessimism about China’s top-tier housing players like Shimao Group, as well as the government-backed Sino-Ocean Group, to amplify economic fears about the world’s biggest industrial player China.

Apart from what’s mentioned above, a Reuters poll of 80 FX strategists for the US Dollar also underpins a bullish bias for the greenback. That said, the survey of the Forex strategists cites the hopes of further DXY run-up on resilient US economy. The poll also hints at receding US Dollar short positions while quoting the data from the Commodity Futures Trading Commission to also favor the US Dollar Index bulls.

Alternatively, softer US data and a cautious mood ahead of the key catalysts prod the DXY bulls. That said, US Factory Orders reprints 0.3% MoM growth for May versus 0.8% expected. The official publication also mentioned that the new orders for manufactured durable goods in May rose for the third consecutive month. Earlier in the week, the US ISM Manufacturing PMI and S&P Manufacturing PMI came in softer and weighed on the US Dollar Index.

Against this backdrop, the markets almost priced in the June Fed rate hike by 0.25% and propel the US Dollar Index while the Wall Street benchmarks closed in the red and the US Treasury bond yields jumped.

Looking ahead, today’s US ISM Services PMI and ADP Employment Change for June, as well as China headlines and recession woes, will be crucial for clear directions of the DXY.

Technical analysis

Although a fortnight-old restricts immediate downside of the US Dollar Index around 103.25, backed by bullish MACD signals and upbeat RSI (14) conditions, the DXY bulls need validation from a downward-sloping resistance line from June 12, near 103.50, to keep the reins.