• US Dollar Index grinds higher after bouncing off seven-week low.
• Slump in banking stocks, mixed US data allow US Dollar to pare weekly loss.
• Comments from US Treasury Secretary Yellen, fears of more Fed rate hikes renew USD demand.
• A slew of economics to offer an interesting end to the volatile week.

US Dollar Index (DXY) holds onto the late Thursday’s rebound from a multi-day low to 102.65 during early Friday. In doing so, the greenback’s gauge versus the biggest weekly loss since early January amid fresh hopes of higher Federal Reserve (Fed) rates and more banking turmoil.

That said, a collapse in the banking shares and chatters that the Fed’s emergency lending to the banks has ballooned the balance sheet, renewing fears of more Fed rate hikes, which in turn allowed the DXY to pare recent losses. Also favoring the US Dollar Index buying could be the mixed US data.

“Federal Reserve emergency lending to banks, which hit record levels the last week, remained high in the latest week, amid continued large-scale extensions of credit to the financial system, which now includes official foreign borrowing.,” reported Reuters. The news also said that borrowing from the Fed caused the size of its overall balance sheet to move to $8.8 trillion from $8.7 trillion the prior week.

Elsewhere, the US Chicago Fed National Activity Index (CFNAI) dropped to -0.19 in February versus 0.0 expected and 0.23 prior. Further, Weekly Initial Jobless Claims declined to 191K for the week ended on March 18, versus 192K prior and 203K market forecasts. It should be noted that the US New Home Sales rose 1.1% in February from 1.8% prior, versus 1.6% analysts’ estimation.

It should be noted that the US Treasury Secretary’s testimony in front of the House Appropriations Financial Services Subcommittee probed the market’s previous risk-on mood and allowed the US Dollar Index (DXY) to pare losses at the seven-week low. “China and Russia may want to develop an alternative to the US dollar,” while also showing preparedness for additional deposit actions `if warranted'. “Strong actions have been taken to ensure deposits are safe,” said US Treasury Secretary Yellen.

Against this backdrop, Wall Street pared intraday gains and closed with a light green number whereas the Treasury bond yields also recovered but failed to post a positive closing.

Looking ahead, preliminary readings of the US S&P Global PMIs for March and the Durable Goods Orders for February will be crucial for the US Dollar Index traders to watch as firmer readings could join the aforementioned factors to extend the latest DXY recovery.

Technical analysis

Although the lower band of the Bollinger on the daily chart restricts US Dollar Index (DXY) downside near 102.30, the DXY bulls need validation from the 50-DMA hurdle of 103.45 to extend the rebound.