US Dollar Index dribbles around mid-106.00s with eyes on US Retail Sales, Fed Minutes

• US Dollar Index struggles to defend buyers after reversing from three-week top.
• Dicey markets ahead of the key data/events keep traders on their toes.
• Recession woes, geopolitical tussles challenge optimists amid mixed data.
• FOMC Minutes will be watched closely to confirm a 0.75% rate hike in September.

US Dollar Index (DXY) treads water around 106.50 amid cautious sentiment ahead of crucial data/events. That said, the greenback’s gauge versus the six major currencies refreshed its three-week high before reversing from 106.94 the previous day.

Economic concerns surrounding China and Europe should have joined geopolitical fears and recently increasing hawkish Fed bets to underpin the DXY run-up. However, firmer equities and a retreat of the bond buyers appeared to have tamed the greenback bulls of late.

China’s readiness for multiple measures to tame recession woes joined Europe’s signals to renew the nuclear deal with Iran while pushing back plans for the closure of Germany’s last three nuclear power plants. On the same line was the Washington Post (WaPo) news that mentioned that Chinese authorities ordered factories to suspend production in several major manufacturing regions to preserve electricity, as the country face the worst heat wave in six decades.

Further, the latest news from Tokyo media suggesting Russian alerts to Japanese companies about the Sakhalin-2 transfer plan, as well as high-level talks between Japan and China, highlight the geopolitical fears and favor the US dollar’s haven demand.

On the other hand, US Industrial Production grew 0.6% in July versus 0.3% expected and upwardly revised 0.0% prior whereas Building Permits also increased to 1.674M MoM during the stated month versus 1.656 market expectations and 1.696M previous readings. Additionally, the Housing Starts dropped to 1.446M from 1.599M prior and 1.54M expected.

While portraying the mood, Wall Street managed to close on the positive side, despite retreating by the end of the day. That said, the US 10-year Treasury yields snapped a two-day downtrend by regaining 2.80% at the latest. It should be noted that the US 10-year Treasury yields keep the previous day’s rebound at 2.82% while the S&P 500 Futures print mild losses at the latest.

Risk catalysts may direct immediate DXY moves ahead of US Retail Sales for July, expected 0.1% versus 1.0% prior, as well as the Federal Open Market Committee (FOMC) meeting minutes.

Given the looming doubts over the Fed’s hawkish play, softer US data and signals of no more 0.75% rate hikes could drown on the DXY.

Technical analysis

Although the 107.00 hurdle challenge DXY bulls, a sustained break of the two-week-old descending trend line, at 106.30 by the press time, keeps the buyers hopeful.