US Dollar Index stays firmer above 96.00 as yields, stock futures portray risk-off mood

• DXY extends the previous day’s recovery moves, seesaws around daily high of late.
• Coronavirus numbers test previously optimistic studies showing less risk from Omicron.
• Fed rate-hike calls add to the bullish bias amid year-end thin liquidity.
• Second-tier US data, risk catalysts to offer intermediate moves.

US Dollar Index (DXY) remains firmer for the second consecutive day, up 0.05% around 96.20 by the press time of early Wednesday morning in Europe.

In doing so, the greenback gauge benefits from the market’s rush for risk-safety amid fears emanating from the US Federal Reserve’s (Fed) next move, as well as from the South African covid variant, namely Omicron.

Although daily covid figures from New Zealand and China have been easing at the latest, France reported the world’s biggest-ever daily jump in COVID-19 infections with 179,807 new confirmed cases. The UK also marked a fresh all-time high of the daily virus cases with above 122,000 figures while Reuters said, “The average number of new COVID-19 cases in the United States has risen 55% to over 205,000 per day over the last seven days.” Additionally, Australia’s most populous state New South Wales (NSW) reports doubling of the covid infections for Tuesday, with 11,201 new infections and three virus-led deaths.

On the other hand, markets' hope of the Fed’s early rate hike got a boost by the firmer US inflation expectations data, as per 10-Year Breakeven Inflation Rate numbers from the Federal Reserve Bank of St. Louis (FRED). The inflation gauge stayed near the three-week high of 2.50% at the latest.

Even so, mixed US data tested the DXY bulls, despite renewing the upside momentum the previous day. That said, the US Housing Price Index eased below 1.2% forecast to 1.1% in October while S&P/Case-Shiller Home Price Indices stepped back from 19.5% prior to 18.4%, versus 18.5% market consensus. However, the Richmond Fed Manufacturing Index for December crossed the upwardly revised 12.00 figure with 16.00%.

Against this backdrop, the US 10-year Treasury yields remain pressured around 1.475% while the two-year benchmark, which jumped to the highest since March 2020, also flirts with a 0.742% level, down 0.8 basis points (bps). Further, S&P 500 Futures reverses early Asian gains whereas Asia-Pacific shares traded mixed by the press time.

Moving on, the US Pending Home Sales and Goods Trade Balance for November will decorate the calendar while risk catalyst may offer intermediate moves to the USD/JPY traders. Though, thin end-of-year liquidity conditions may limit the short-term momentum.

Technical analysis

A convergence of the 10-DMA and 21-DMA, around 96.25, precedes a two-week-old descending resistance line of 96.30, to restrict short-term DXY upside. However, the bears are less likely to take the risk of entries until witnessing a clear downside break of the monthly support line, close to 96.00 by the press time.