US Dollar Index tracks softer yields ahead of ADP Employment Change, FOMC Minutes

• DXY pauses two-day uptrend after refreshing fortnight high.
• Yields retreat, stock futures ease amid mixed concerns over Omicron, Fed’s next move.
• US data came in softer, inflation expectations also softened on Tuesday.
• US ADP figures will be tracked for early signal of Friday’s NFP, Fed policymakers eyed for rate hike clues.

US Dollar Index (DXY) retreats from a two-week high to 96.28 during Wednesday’s Asian session. In doing so, the greenback gauge drops for the first time in the last three days while following the US Treasury yields and mixed catalysts.

The US 10-year Treasury bond coupon seesaws around the six-week high, down one basis point (bp) near 1.65% at the latest after refreshing the multi-day top the previous day. Even so, the S&P 500 Futures remain pressured, down 0.15% intraday around 4,775, after the Wall Street benchmarks closed mixed.

Mixed clues concerning the Fed’s next action and the South African covid variant, Omicron, joins cautious mood ahead of the key US data/events seem to weigh on the sentiment of late. That being said, hopes of stimulus and receding fears from the South African covid variant could be cited as the key catalysts for the previous optimism.

On the positive side are comments from World Health Organization (WHO) official that again tried to placate fears over Omicron. "We are seeing more and more studies pointing out that Omicron is infecting the upper part of the body. Unlike other ones, the lungs who would be causing severe pneumonia," WHO Incident Manager Abdi Mahamud told Geneva-based journalists per Reuters. Also, a steady increase in global covid vaccinations and hopes of further stimulus from the US and China could be cited for the market’s previously positive mood.

Furthermore, mixed data from the US and a pause in the inflation expectations joined comments from the Fed to also probe the bulls.

The ISM Manufacturing PMI dropped to the lowest in 11 months in December, 58.7 versus 60.0 forecast and 61.1 prior, whereas November’s JOLTS Jobs Openings came in lower than the upwardly revised previous reading of 11.091M to 10.562M.

The US inflation expectations, as per 10-Year Breakeven Inflation Rate numbers from the Federal Reserve Bank of St. Louis (FRED) eased from a six-week high to 2.57% at the latest, which in turn tamed Fed rate-hike chatters.

Also, Minneapolis Fed President and 2022 voting FOMC member Neil Kashkari, who surprised markets with this hawkish hopes of two rate lifts in 2022 still fall short of the money market bets favoring three such actions, which in turn weigh on the sentiment.

Moving on, the anticipated easing in the ADP may exert additional downside pressure on the DXY, the hawkish tone of the policymakers in the Federal Open Market Committee (FOMC) Meeting Minutes will be enough to keep the firmer around the highest level in two weeks.

Read: US ADP December Preview: Suddenly its inflation, not jobs

Technical analysis

Having bounced off the 50-DMA during Friday, the US Dollar Index crossed the 20-DMA level on Tuesday and has been above the same of late. As a result, DXY bulls remain hopeful until witnessing a downside break of the 50-DMA level of 95.70 while the 96.20 level, comprising 20-DMA, offers immediate support to watch during the quote’s pullback moves.

On the contrary, a descending resistance line from November 22, near 96.22 by the press time, becomes crucial to watch during the quote’s further upside.