US Dollar Index: DXY retreats toward 102.50 on Russia, China news, focus on inflation, Bank Stress Test

• US Dollar Index consolidates the first weekly gain in four around intraday low.
• Cautious optimism about global growth concerns, risk-positive headlines from China, Russia also prod DXY bulls.
• US inflation data, US Bank Stress Test and central bankers’ speeches from ECB Forum will be crucial for clear directions.

US Dollar Index (DXY) takes offers to pare the biggest weekly gains in four around 102.70 amid early Monday morning in Asia. In doing so, the US Dollar’s gauge versus the six major currencies consolidates the latest run-up amid slightly positive sentiment, as well as the market’s preparations for this week’s top-tier US data and speeches from the key central bankers.

It’s worth noting that the doubts about Russian President Vladimir Putin’s power in Moscow and hopes of major stimulus from China allowed trades to witness cautious optimism and weighed on the US Dollar. “Heavily armed Russian mercenaries withdrew from the southern Russian city of Rostov under a deal that halted their rapid advance on Moscow but raised questions on Sunday about President Vladimir Putin's grip on power,” said Reuters in this regard.

Additionally, Ning Jizhe, deputy head of the economic committee of the Chinese People's Political Consultative Conference (CPPCC) and a former vice head of the National Development and Reform Commission (NDRC) flagged concerns about sooner stimulus from China and allowed the AUD/USD to rebound, due to its business ties with Beijing. “China needs to step up measures as soon as possible to bolster a faltering post-COVID recovery in the world's second-largest economy,” said China’s Ning Jizhe per Reuters.

Though, headlines suggesting major investors’ pause in China optimism join hawkish comments from the Fed officials and comparatively upbeat US data to keep the DXY buyers hopeful.

“Investors are waiting for a big burst of stimulus from China before they make more aggressive bets on a recovery, having spent the past few months disappointed by economic data and a lack of meaningful policy response from Beijing, said Reuters.

It should be noted that the Fed officials rush towards suggesting two more rate hikes from the US after witnessing upbeat data. On Friday, US S&P Global PMIs for June came in mixed as the Manufacturing PMI dropped to 46.3 from 48.4 prior, versus 48.5 expected, whereas the Services PMI improved to 54.1 from 54.0 expected despite being lesser than the 54.9 previous monthly figure. With this, the Composite PMI declined to 53.0 versus 54.4 market forecasts and 54.3 prior.

Following the mixed US PMIs, Chris Williamson, Chief Business Economist at S&P Global Market Intelligence said, “Any further rate hikes will of course have a further dampening effect on this sector (services) which is especially susceptible to changes in borrowing costs." That said, Federal Reserve Bank of San Francisco President Mary Daly told Reuters on Friday that two more interest rate increases this year would be a "very reasonable projection."

Against this backdrop, S&P500 Futures rise 0.20% intraday near 4,400 despite witnessing a downbeat week for Wall Street and gains of the US Treasury bond yields.

Although the risk-positive headlines from China and Russia weigh on the US Dollar Index (DXY), the DXY bulls remain hopeful unless witnessing a clear rejection of the risk aversion from the US inflation numbers and speeches of the top-tier central bankers at the European Central Bank (ECB) Forum, as well as the US Bank Stress Test results.

Also read: Weekly outlook and review: Inflation is front and centre in the final full week of June

Technical analysis

US Dollar Index remains sidelined between the 100-DMA and a 10-week-old rising support line, respectively near 103.10 and 102.10.