US Dollar Index (DXY) steadies above 102.00 amid strong yields ahead of US Inflation

• US Dollar Index grinds higher after positing the first weekly gain in three.
• US Treasury yields regain upside momentum following strong US NFP, hawkish Fedspeak.
• Increasing odds of September rate hike, mixed concerns allow DXY to stay firmer.
• Headlines from China, optimism ahead of ECB test greenback buyers before Thursday’s US CPI.

US Dollar Index (DXY) dribbles around mid-102.00s after a two-day uptrend, not to forget the first weekly jump in three, as traders seek fresh clues during Tuesday’s Asian session.

The greenback gauge’s latest run-up could be linked to the firmer Treasury yields. However, the market’s anxiety ahead of Thursday’s European Central Bank (ECB) monetary policy meeting and Friday’s US Consumer Price Index (CPI) for May seem to test the DXY bulls of late. Also challenging the greenback’s recovery are the recent positives from China.

Recently, China Securities Journal (CSJ) praised the country’s virus control and policy stimulus while expecting economic improvement in the second half (H2) of 2022. Previously, Beijing’s ability to overcome the pandemic and citing preparations to recover from the economic loss with faster unlocks joined US President Joe Biden’s likely easy stand for China, as far as showing readiness to remove Trump-era tariffs, seemed to have favored sentiment and tested the US dollar’s safe-haven appeal.

Even so, firmer US Nonfarm Payrolls (NFP) and the hawkish appearance of the Fedspeak’s last dose before the blackout norm favored the US Treasury yields to extend the first weekly gains in four, up by around 10 basis points (bps) to 3.04%. The same underpins the US Dollar Index run-up amid recently escalating hopes of a 0.5% rate hike during September, versus previously thin chatters surrounding the same.

That said, DXY traders should keep their eyes on the risk catalysts, as well as the US CPI and ECB, for clear directions. However, the US Goods and Services Trade Balance for the said month, forecast $-89.5B compared to $-109.8B previous readouts, can also direct short-term moves.

Technical analysis

Although the 50-DMA defends DXY bulls around 101.80, upside momentum needs validation from the 21-DMA surrounding 102.80 to aim for April’s top near 104.00.