US Dollar Sideways As Traders Keep Powder Dry For Powell

The US Dollar (USD) is painting a similar picture as seen on Tuesday, with a big batch of Asian currencies being outpaced by the Greenback. In contrast, European and Scandinavian currencies are reluctant to bow to the US Dollar bulls. The biggest loser is the South Korean Won which is losing nearly 1% intraday, followed by the Taiwan Dollar. Throughout the week, housing data is the key theme, and Wednesday is no different, with the Mortgage Market Index jumping higher. 

Although there are only two Fed speakers today, one of them will be the most important to listen to this week. US Federal Reserve (Fed) Chairman Jerome Powell will take the stage in the semi-annual House Financial Service Panel. Powell will try to revamp his hawkish message from last week’s Fed rate pause, which could bring some more US Dollar strength on the back of his comments. The second Fed speaker today will be Federal Reserve Bank of Chicago President Austan Goolsbee, who will speak at a global food forum at 16:25 GMT. 

Daily Digest: US Dollar Lingers Towards The Powell Testimony

  • A somewhat mixed picture on the map when looking at the US Dollar performance. A firm stronger USD in Asia with the biggest loser, the South Korean Won. In Europe and Scandinavia, all pairs look relatively flat for the day in their performance against the Greenback, while Central Europe is even taking the upper hand on the US Dollar, with Russian Rubble up 0.5% and Polish Zloty gaining 0.25% as the biggest gainers while the European session is going into the last few hours of trading for today. 
  • China is furious after US President Joe Biden called China’s President Xi Jinping a dictator. The unfortunate comments from President Biden came just one day after US Secretary of State Antony Blinken visited Beijing for the first time since 2018 to support the dialogue between the two nations. 
  • The PBoC fixed its China Yuan weaker against the USD at 7.1795. 
  • The Bank of Japan (BoJ) has released its minutes and committed to its monetary easing. 
  • Several Chinese media outlets have reported China will bring further interest-rate and Reverse Repo Rate (RRR) cuts this year.
  • On the data front,  US Mortgage Bankers Association (MBA) came out at 11:00 GMT. The Purchase Index jumped to 165.6 from 163.2 the previous week. The Mortgage Market Index jumped from 208.8 to 209.8 for the week, and the Refinance Index declined from 434.1 to 425.1. The overall Applications for the week fell but were still positive, from 7.2% last week to 0.5% this week. 
  • US Fed Chairman Powell’s testimony will start at around 14:00 GMT. His speech will be published just minutes before he takes the stage at the House. 
  • The US Treasury is tapping the markets again for a 4-Month bond placement at 15:30 GMT and another 20-year bond placement at 17:00 GMT. 
  • Equities are looking for direction as the US Dollar strength limits any big uprises in European equities. Today’s biggest loser is China, where the Hang Seng closed nearly -2% lower while European stock markets were flat. US Equity is slightly lower for today. 
  • The CME Group FedWatch Tool shows that markets are pricing in a 79.4% chance of 25 basis points (bps) interest-rate hike on July 26, increasing from 74% on Tuesday.  Markets seem to be pricing in just one more hike, while all other futures for 2023 are pointing to an unchanged rate level. The market is challenging the view of the Fed’s Dot-Plot curve, which shows most Fed members see two more hikes this year. 
  • The benchmark 10-year US Treasury bond yield trades at 3.75%, lower than the 3.82% seen on Tuesday. Investors park their money in bonds, increasing prices and lowering bond yields. US bond prices and products have not been making big waves today because of the US Fed Chairman Powell’s speech. 

US Dollar Index Technical Analysis: DXY Going For the Second Day Of Gains

The US Dollar is not showing a unified front against most currencies as an apparent regional effect can be defined. The Greenback is advancing in Asia while losing ground in Central Europe and being unphased in Europe and Scandinavian countries. This results in the US DollarIndex (DXY)  being unable to advance higher but still holding on to gains of around 102.50. A break above Tuesday’s high at 102.78 would see more US Dollar strength toward the end of this week. 

On the upside, the 55-day Simple Moving Average (SMA) at 102.57 should flip back into support if US Dollar bulls can trigger a daily close above. Should the DXY recover further today or this week, look for the 103.00 psychological level as the next big challenge to the upside. The 100-day SMA at 103.06 will be key to reach should the DXY want to advance further.  

On the downside, the psychological level near 102.00 is the only element upholding DXY. Once price action starts to reside below it, expect another nosedive to move toward 100.82. That means a challenge for this year’s low would imply a substantial devaluation for the Greenback. 

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