DXY: Short covering underway - OCBC

US Dollar (USD) consolidates with mild upticks this morning. DXY was last at 99.15 levels, OCBC's FX analysts Frances Cheung and Christopher Wong note.

US-China trade talks may lead to de-escalation

"Daily momentum and RSI indicators are not showing a clear indication. Support at 98.35, 97.90 (2025 low). Resistance at 99.80 (21 DMA), 100.20 (50 DMA). We continue to flag the risk of USD short covering ahead of CPI, PPI reports (Wednesday, Thursday, respectively) and FOMC event risk next week."

"US CPI (on Wednesday) can be a binary risk. Consensus expects core CPI to pick up slightly to 0.3% MoM (vs. 0.2% prior) and headline CPI to hold steady at 0.2% MoM. Softer print may see USD softness resuming while firmer print may see USD shorts unwind further. On US-China trade talks, Scott Bessent told reporters yesterday they had a 'good meeting' while Lutnick called the discussions 'fruitful'."

"US signalled a willingness to remove restrictions on some tech exports in exchange for assurances that China is easing limits on rare earth shipments. We continue to monitor if the current round of US-China trade talks (extends into day 2 in London) leads to a more formalised agreement before the trade truce expires on 12 August. Positive developments on this front should continue to keep AxJs broadly supported."