US Dollar Index: DXY traces firmer yields to grind higher past 102.50 amid hawkish Fed concerns

• US Dollar Index prints three-day winning streak by extending last week’s recovery from monthly low.
• Fed report to Congress, comments from officials and upbeat US housing data favor DXY bulls.
• Challenges to sentiment add strength to US Dollar recovery as markets await more clues after Monday’s Juneteenth holiday.
• Fed Chair Powell’s Testimony is the key event of the week, PMIs are important too.

US Dollar Index (DXY) stays on the front foot as it refreshes intraday high near 102.55 during early Tuesday.

In doing so, the greenback’s gauge versus the six major currencies copies the moves of the US Treasury bond yields while printing the third consecutive daily run-up, so far, while extending the previous week’s rebound from the monthly low.

That said, the US 10-year and two-year Treasury bond yields grind higher to 3.82% and 4.75%, up for the third consecutive day by the press time.

The US bond coupons justify the market’s bets on the Federal Reserve’s (Fed) July rate hike, nearly 70% of late, as well as the trader’s rush towards risk safety amid indecision about China.

The Fed monetary policy reports to the US Congress and the latest comments from the Fed officials have been hawkish. That said, the Fed policy report for Congress said, “Inflation in the US is well above target and the labor market remains very tight,” as per Reuters, which in turn put a floor under the US Dollar Index (DXY). Among the Fed talkers, Richmond Fed President Thomas Barkin, Chicago Fed President Austan Goolsbee and Federal Reserve Governor Christopher Waller also appeared a bit hawkish and helped the DXY to reverse from a multi-day low.

On the other hand, the US-China tension about Taiwan escalated and the concerns about China’s inability to propel the growth trajectory also roiled the sentiment and the Juneteenth holiday in the US. It’s worth observing that the US National Association of Home Builders (NAHB) survey jumped to 55.0 in June from 50.0 prior, marking the highest level in 11 months and favored the DXY to grind higher, before the latest retreat.

It’s worth noting that the upbeat yields in the Eurozone and the UK also favored the US bond coupons and the DXY despite the Juneteenth holiday the previous day.

Moving on, a return of the full markets may entertain the DXY traders with the US housing numbers on the calendar to watch. Though, major attention will be given to Fed Chair Jerome Powell’s Testimony and preliminary readings of June’s PMIs for a clear short-term view.

Technical analysis

While upbeat oscillators favor the latest recovery of the US Dollar Index (DXY), the 50-DMA and a two-week-old falling resistance line, respectively near 102.65 and 103.00, can challenge the upside momentum.