US Dollar Index stays defensive near 104.00, eyes the biggest yearly jump since 2015

• US Dollar Index picks up bids to pare early-day losses amid sluggish session.
• US Treasury bond yields seek fresh clues, risk catalysts flash mixed signals.
• Softer US data weigh on hawkish Fed bets but fears from China keep DXY firmer.
• Second-tier US data, Xi-Putin talks eyed for fresh impulse.

US Dollar Index (DXY) pares recent losses as it regains 104.00 level during early Friday morning in Europe. In doing so, the greenback’s gauge versus the six major currencies replicates the sluggish markets amid the year-end holiday mood, as well as due to the mixed catalysts. It should be noted that the DXY prints the biggest yearly gains since 2015 despite the latest three-month downtrend.

The DXY dropped the most in two weeks the previous day after the US data pushed back the hawkish Fed expectations. That said, the Initial Jobless Claims rose 225K versus 216K prior for the week ended on December 24 while the Continuing Jobless Claims increased by 1.71M from 1.669M previous readout during the week ended on December 16. However, the 4-week moving average for the same dropped to 221K versus the revised down previous readings of 221.25K.

On the other hand, pessimism surrounding China’s Covid conditions and the Ukraine-Russia tussles weigh on the sentiment and put a floor under the DXY prices. Alternatively, the hopes of the peak in the virus numbers in China and the discovery of an anti-Covid pill joins the chatters of no economic slowdown in the US and Europe to keep the markets positive. Also likely to defend the US Dollar optimists is the US government funding bill worth $1.7 trillion for the fiscal year 2023.

Against this backdrop, the US 10-year Treasury yields fade the previous day’s pullback from the six-week high and take rounds to 3.83% whereas the S&P 500 Futures print mild losses around 3,857 despite Wall Street’s positive closing.

Moving on, the year-end consolidation and a light calendar could challenge DXY traders but a virtual meeting between China President Xi Jinping and Russian counterpart Vladimir Putin could entertain traders. Further, the US Chicago Purchasing Managers’ Index for December, expected 41.2 versus 37.2 prior, will decorate the calendar.

Technical analysis

US Dollar Index remains sidelined between 103.75 and 104.55 but the bears appear to run out of steam, if watched on the daily timeframe.