DXY stays defensive above 104.00 amid Fed concerns, focus on US Factory Orders

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• US Dollar Index remains dicey after a downbeat start to the week that snapped two-day winning streak.
• Mixed US data, unimpressive Fed talks confirms September inaction, odds of witnessing one rate hike in 2023 defend DXY bulls.
• US Labor Day holiday, China-inspired risk-on mood allowed Greenback buyers to take a breather.
• US Factory Orders, yields eyed for fresh impulse.

The US Dollar Index (DXY) remains sidelined around 104.10-15 as bulls and bears jostle amid a light calendar in Tuesday’s Asian session. Also challenging the DXY traders are mixed concerns about the US Federal Reserve (Fed) and China, as well as the cautious mood ahead of the full markets’ reaction to the latest developments, as well as the mid-tier US data and risk catalysts.

That said, the market’s bets on the Federal Reserve’s (Fed) status quo in September contrasts with a recent improvement in the odds favoring a rate hike during late 2023 seems to prod the US Dollar moves. That said, Federal Reserve Bank of Cleveland President Loretta J. Mester defended the US central bank’s hawkish move and ruled out the rate cut bias in her speech on Friday.

On Friday, Nonfarm Payrolls (NFP), the August numbers initially renewed hawkish bias about the Fed, even if the Unemployment Rate and Average Hourly Earnings kept the policy pivot concerns on the table afterward. Following that, the global rating agency Moody’s revised up the US Gross Domestic Product (GDP) predictions for 2023 to 1.9% versus 1.1% expected in May.

It’s worth noting that China’s readiness for opening up the services industry, as well as developments of the manufacturing activities, joins a slew of measures to cut mortgage rates and infuse more liquidity to weigh on the DXY. Further, the optimism about China’s struggling reality firm Country Garden, after it managed to gain approval from creditors to delay the debt payments of around 3.9 billion Yuan ($536 million), also exerts downside pressure on the US Dollar Index.

With the recent improvement in the German bund yields and reassessment of the Fed concerns, especially as the full markets return, the DXY pares the previous day’s losses but seeks more clues to recall the buyers.

Looking forward, China’s Caixin Services PMI for August, as well as the US Factory Orders for the said month, will be important to watch for clear directions. Above all, the risk catalysts and the bond moves should be watched carefully for clear directions.

Technical analysis

Although the US Dollar Index (DXY) bulls remain hopeful beyond the 21-DMA support of 103.45, a downward-sloping resistance line from late May, close to 104.45 by the press time, restricts the immediate upside of the Greenback’s gauge versus the six major currencies.