US Dollar Index stays pressured around 96.50, ignores upbeat yields amid Omicron fears

• DXY pares Friday’s heavy gains, down for the second consecutive day.
• US Treasury yields keep rebound from 16-month-old support, stock futures print mild gains.
• US reports the first Omicron linked death, New Zealand pushes back border easing.
• BBB hopes, lack of major catalysts allow market consolidation.

US Dollar Index (DXY) prints a two-day downtrend, mildly offered around 96.47 during early Tuesday. The greenback gauge struggles for a clear direction as a light calendar and year-end holiday mood battles Omicron fears and US stimulus hopes.

In doing so, the DXY ignores firmer US 10-year Treasury yields, up one basis point (bp) at 1.426% while keeping the bounce off a three-week low. It’s worth noting that the mildly bid S&P 500 Futures and mixed performance of the Asia-Pacific shares are likely weighing on the US Dollar Index during a sluggish Asian session.

The US reports the first death linked to Omicron, in Texas, after the US Disease Control and Prevention (CDC) said, per Reuters, “Omicron is now the most common coronavirus variant in the US, accounting for nearly three-quarters of COVID-19 cases.” Further, comments from the World Health Organization (WHO) and the Imperial College of London also cited fears of a faster pace of the virus variant spread. Additionally, New Zealand’s push-back of the border reopening plan from January to the end of February also portrays the virus woes.

Adding to the risk-off mood were the latest comments from Chinese foreign minister Wang Yi who said, per Reuters, "If there is confrontation, then (China) will not fear it, and will fight to the finish." China’s Wang Yi adds, "There is no harm in competition but it should be ‘positive’”.

It’s worth noting that the chatters surrounding Fed rate-hike, backed by Fed Board of Governors member Christopher Waller on Friday, also sour the sentiment.

Alternatively, On the contrary, chatters that Omicron will peak in 8-10 weeks, backed by Morgan Stanley, join hopes of US President Joe Biden’s ability to roll out the Build Back Better (BBB) despite Senator Joe Manchin’s rejection to vote in favor, seem to underpin the latest market consolidation amid a quiet session.

Looking forward, US President Joe Biden’s address to the nation will be important to watch even as White House Press Secretary Jen Psaki mentioned that the speech, “Will not be about locking the country down.”

Technical analysis

An ascending triangle bearish formation restricts short-term DXY moves between 96.90 and 95.90, with the 21-DMA level of 96.30 acting as an intermediate halt.