US Dollar Index: DXY bulls eye 103.00 on hawkish Fed clues, China woes, focus on Powell’s testimony

US Dollar Index (DXY) remains firmer for the fourth consecutive day despite recent inaction around 102.60 early Wednesday. In doing so, the greenback’s gauge versus the six major currencies portrays the market’s positioning for Federal Reserve (Fed) Chair Jerome Powell’s bi-annual testimony amid hopes of witnessing further upside of the DXY, especially when the Fed policymakers back higher rates and the sentiment remains dicey.

That said, the news that US President Joe Biden on Tuesday called Chinese President Xi Jinping a dictator prod the DXY bulls near the intraday high. The comments flag grim concerns surrounding the US-China ties after US Secretary of State Antony Blinken’s visit to Beijing failed to provide any major positives. The same should keep the Gold pair sellers hopeful.

It should be noted that the People's Bank of China (PBoC) first cut in the two key lending rates (namely the Loan Prime Rate (LPR) and Medium-term Landing Facility (MLF) rate) for the first time in almost a year propel the risk-off mood and the US Dollar’s haven demand.

Talking about the central bank signals, Fed governor and Vice Chair Nominee Philip Jefferson said, “I remain focused on returning it to our 2% target.” On the same line, Federal Reserve Governor Lisa Cook said "I am committed to promoting sustained economic growth in a context of low and stable inflation," in her statement to be given before the Senate on Wednesday. Further, Fed Board nominee Adriana Kugler also mentioned, per the prepared statements for Wednesday’s Testimony, that returning inflation to the central bank's 2% target is key to setting a strong foundation for the US economy.

Additionally, US Housing Starts jumped to the highest level since April 2022 by rising 21.7% MoM in May versus -2.9% (revised from +2.2%) recorded in April and -0.8% market forecasts, which in turn favor the DXY bulls. On the same line, Building Permits were also upbeat for the said month, up 5.2% MoM versus -5.0% expected and -1.4% previous readings (revised from -1.5%).

Amid these plays, the Wall Street benchmark began the week on the negative side but S&P500 Futures remain sidelined whereas the US Treasury bond yields also snapped a two-day winning streak the previous day before posting early-day inaction of late.

Looking forward, a light calendar ahead of Fed Chair Jerome Powell’s bi-annual testimony can challenge the US Dollar Index (DXY) traders. Should Fed Pair Powell defends the hawkish play of the US central bank, the DXY may have further upside to track.

Technical analysis

Unless providing a daily close beyond the 50-DMA and a two-week-old descending resistance line, respectively near 102.65 and 102.75, the US Dollar Index (DXY) bulls need to remain cautious.