US Dollar Index eyes the first monthly gain in five despite week-start retreat from multi-day top

• US Dollar Index pares monthly gains amid mixed US data, geopolitical concerns.
• Hawkish Fed bets keep DXY bulls hopeful amid sluggish end to a volatile month.
• Second-tier US statistics eyed for intraday directions; headlines surrounding China, Russia also important for fresh impulse.

US Dollar Index (DXY) holds lower grounds near 104.60 during the mid-Asian session on Tuesday after posting the biggest daily loss in five. It’s worth noting that the greenback’s previous losses could be linked to mixed US data and a retreat in the US Treasury bond yields. The latest pause in the DXY, however, could be linked to the mixed sentiment in the market ahead of the second-tier US data release.

On Monday, the greenback’s gauge versus the six major currencies traced a treat in the US Treasury bond yields amid mixed US data to tease the DXY sellers around the multi-day top.

US Durable Goods Orders slumped -4.5% in January versus -4.0% expected and 5.1% prior. However, the Nondefense Capital Goods Orders ex Aircraft grew 0.8% versus 0.0% analysts’ expectations and -0.3% previous readings. On the same line, the US Pending Home Sales rallied 8.0% MoM versus 1.0% expected and 1.1% prior.

With this, the benchmark 10-year US Treasury bond yields dropped three basis points (bps) to 3.92% after a five-week uptrend, while the two-year counterpart followed suit by retreating from a three-month high to 4.78%.

It should be noted, however, that the Fed policymakers defend their hawkish bias and underpin the hopes of higher Fed rates, which in turn challenge the US Dollar Index bears. That said, Federal Reserve Governor Philip Jefferson said on Monday that it is important to get back to 2% inflation to allow those sorts of sustained economic gains. Reuters also portrayed hawkish Fed concerns while saying, “Economic data this month reflected still tight jobs markets and inflation remaining sticky, leading Fed funds futures traders to bet on higher rates, which in the US are now seen peaking in September at 5.4%, up from 4.58% now.”

Not only the hawkish Fed bets but the fears surrounding the US-China ties, despite the recent show of olive branch by the White House, also keeps the DXY buyers hopeful. On Monday, US National Security Advisor Jake Sullivan said on CNN’s “State of the Union” China’s stance on the Russian invasion of Ukraine puts it in an “awkward” position internationally, and any weapons support to Russia would come with “real costs.”

“Despite fraying relations with Beijing, US President Joe Biden is expected to forego expansive new restrictions on American investment in China, denying a push by some hawks in his administration and Congress,” reported Politico late Monday.

Amid these plays, Wall Street closed positive, and the S&P 500 Futures also printed mild gains by the press time.

The second-tier US data, namely US Conference Board’s Consumer Confidence, Chicago Purchasing Managers’ Index and Richmond Fed Manufacturing Index for February, and the preliminary US trade numbers for January, will be important for immediate directions.

Technical analysis

A clear downside break of a three-week-old ascending trend line, now resistance around 104.70, directs US Dollar Index (DXY) bears toward the previous weekly bottom surrounding 103.75.