US Dollar Index stays pressured around monthly low under 96.00 amid firmer yields, covid woes

• DXY struggles to overcome four-week low flashed the previous day.
• US 7-year bond auction, Fed rate-hike concerns joined downbeat US data to favor bears of late.
• Hopes of less severe Omicron concerns, year-end liquidity crunch add downside filters.
• US Jobless Claims, Chicago PMI eyed, risk catalyst are the key.

US Dollar Index (DXY) licks its wounds around 95.90 during early Thursday, following the slump to a monthly low the previous day.

The greenback gauge dropped the most in over a week after a jump in the US Treasury yields joined downbeat US data. However, escalating fears of the South African covid variant, namely Omicron, seems to challenge the DXY bears of late.

US Treasury yields rallied the most in three weeks the previous day after an auction of the US seven-week Treasury bond showed disappointing demand for the government securities during the holiday period. “The seven-year notes sold at a high yield of 1.48%, around two basis points higher than where they had traded before the auction,” said Reuters.

That said, the US 10-year Treasury yields stay firmer around the monthly top near 1.55% by the press time while S&P 500 Futures print mild losses at the latest.

In addition to the holiday mood, downbeat US housing and trade numbers also favor the lack of bond demand. On Wednesday, the US Pending Home Sales for November dropped below the forecast of +0.5% to -2.2% MoM whereas Good Trade Balance hit a record deficit of $-97.8B versus $-83.2B prior.

It should be noted, however, that a sustained increase in the coronavirus cases globally and the policymakers’ rejection to introduce heavy lockdown measures probe the greenback bears. ON the same line are escalating odds of the Fed’s sooner rate-hike in 2022. A jump in the US inflation expectations, as portrayed by 10-Year Breakeven Inflation Rate numbers from the Federal Reserve Bank of St. Louis (FRED) back the Fed rate-hike woes. The inflation gauge refreshed the monthly top to 2.53% at the latest.

Amid these plays, the greenback gauge is an inch closer to the negative monthly print but stays positive on the yearly basis amid the hawkish Fed.  

Moving on, the US Weekly Jobless Claims and Chicago Purchasing Managers’ Index for December, expected 205K and 62 versus 205K and 61.8 respectively, will decorate the calendar and should be observed for fresh clues. However, major attention will be given to the risk catalyst for clear direction.

Technical analysis

In addition to the quote’s sustained trading below 21-DMA, a clear downside break of the monthly support line, respectively around 96.10 and 96.20, also directs DXY towards the 50-DMA level of 95.52.