US Dollar Index retreats towards 95.00 despite multi-day high US Treasury yields

• DXY snaps two-day rebound from 10-week low, seesaws near intraday low.
• US 2-year Treasury yields refresh 23-month high, 10-year, 5-year counterparts refresh two-year tops.
• Market sentiment dwindles amid mixed concerns over Omicron, Fed’s next move.
• US traders return after an extended weekend, next week’s FOMC is the key.

US Dollar Index (DXY) begins the week’s trading on a softer footing, down 0.09% intraday near 95.15 during Tuesday’s Asian session.

In doing so, the greenback gauge drops for the first time in three days while ignoring firmer US Treasury yields and tracking technical signals, by way of Monday’s Doji formation, to hint at the further weakness.

It’s worth observing that the US equities and bond markets were off on Monday due to Martin Luther King’s Birthday. However, China’s firmer GDP and the People’s Bank of China’s (PBOC) Medium-Term Lending Facility (MLF) rate cut joined receding fears of the South African covid variant, namely Omicron, to favor the latest DXY weakness.

On the same line could be the softer prints of the US Retail Sales for December and Michigan Consumer Sentiment Index for January.

Even so, US Treasury yields seem to react to the latest hawkish comment from Federal Reserve Bank of San Francisco President Mary Daly and New York Fed President John Williams, published on Friday, ahead of next week’s Federal Open Market Committee (FOMC) meeting, which in turn tests the DXY sellers.

Amid these plays, the US 10-year and 5-year Treasury yields rose to the highest in two years while 2-year coupon jump to the February 2020 levels during the week-start move. On the other hand, S&P 500 Futures rise 0.12% intraday by the press time.

Looking forward, the US traders’ return from holiday will weigh on the Omicron fears and second-tier activity, as well as housing market, data to portray near-term moves.

Technical analysis

US Dollar Index justifies Tuesday’s Doji candlestick to retreat towards the 100-DMA level of 94.75. Alternatively, upside moves need validation from previous horizontal support from mid-November, now resistance near 95.55.