US Dollar Index: DXY retreats towards 101.00 despite banking sector fears, focus on US Q1 GDP

• US Dollar Index fades late Wednesday’s corrective bounce off the lowest level in a fortnight.
• Passage of initial hurdle for US debt ceiling extension, First Republic Bank-induced banking sector woes fail to impress DXY bulls.
• Greenback braces for softer US Q1 GDP, positive surprise can join risk aversion to recall US Dollar Index buyers.

US Dollar Index (DXY) remains pressured around 101.40 as it fails to extend the previous corrective bounce from a two-week low amid cautious optimism during Thursday’s Asian session. In doing so, the greenback’s gauge versus the six major currencies fails to cheer the banking fears emanating from the First Republic Bank (FRB), as well as the US House of Representatives’ passage of the bill that puts forward a discussion on increasing the US debt ceiling to avoid a default.

“The US House of Representatives on Wednesday narrowly passed a bill to raise the nation's $31.4 trillion debt ceiling, defying President Joe Biden by attaching sweeping spending cuts for the next decade,” said Reuters. Following the passages of the "Limit, Save, Grow Act", the White House spokesperson said that President Joe Biden has made clear this bill has no chance of becoming law. The same challenges the initial optimism surrounding the bill amid fears of long and difficult discussion on the key matter.

On the other hand, escalating fears from the First Republic Bank (FRB) should have also put a floor under the DXY, especially after the troubled bank’s shares dropped another 20% on Wednesday following a 50% slump the previous day. With this, the FRB is likely to face the limits on its Fed borrowings, which in turn spreads the ripple effect across the markets.

Even so, mostly upbeat US data and hopes of the Federal Reserve’s (Fed) pause in the rate hike trajectory, following the next week’s 25 basis points (bps) increase push back the market’s pessimism. Furthermore, growing confidence among traders that there will be no recession in the major economies should have also favored the cautious optimism of late.

On Wednesday, US Durable Goods Orders rose by 3.2% in March versus 0.8% expected and -1.2% prior. Further details suggest that the Durable Goods Orders ex Transportation and ex Defense also rose past market forecasts and previous readings in March.

While portraying the mood, the S&P 500 Futures print mild gains of 0.20% around 4,083 by the press time, following a mixed close of Wall Street.

Moving on, US Dollar Index is likely to continue on its latest downbeat performance amid a cautious mood ahead of the US first quarter (Q1) Gross Domestic Product (GDP), expected to ease to 2.0% on an annualized basis versus 2.6% prior. Should the US growth figures offer a positive surprise, the DXY may reconsider cheering the risk-off mood and lure the buyers.

Technical analysis

A convergence of the 21-DMA and a three-week-old descending trend line, around 101.90, guards short-term US Dollar Index recovery amid sluggish MACD signals. However, the below-50 RSI (14) line suggests bottom-picking.