US Dollar Index extends recovery above 104.00 amid strong US Treasury bond yields

• US Dollar Index picks up bids to extend the latest rebound from one-week low.
• China-linked optimism, mixed US data renew hawkish Fed bets amid holiday season.
• Second-tier US data can entertain traders amid likely inactive markets.

US Dollar Index (DXY) holds onto the week-start recovery moves around 104.25 during early Wednesday. In doing so, the Greenback’s gauge versus the six major currencies traces the firmer prints of the US Treasury bond yields amid a trading session due to the holiday season.

That said, US 10-year Treasury bond yields rose to the fresh high in six weeks the previous day, firmer around 3.85% by the press time, as the positive mood surrounding China’s reopening helped renew hopes of faster Fed rate hikes.

It’s worth noting that the hawkish Fed concerns might have taken clues from the improvement in the US Good Trade Balance for November, $-83.3B versus $98.8B prior, while ignoring softer prints of the US S&P/Case-Shiller Home Price Indices for October, 8.6% YoY versus 9.7% expected and 10.4% previous readings. It’s worth noting that the previously mixed readings of the US inflation and growth figures raised doubts about the Federal Reserve’s (Fed) hawkish move, especially after the US central bank appeared cautiously optimistic over the rate hikes in its latest monetary policy meeting.

China’s easing of the Coronavirus-linked activity restrictions joined an upward revision to the 2021 Gross Domestic Production forecast to favor the sentiment despite the sluggish holiday season. That said, China mentioned that it would stop requiring inbound travelers to go into quarantine from January 8, the National Health Commission (NHC) said late on Monday, a major step towards loosening its curbs, per Reuters. The news joins China’s National Bureau of Statistics (NBS) upward revision to the 2021 GDP growth to 8.4% from 8.1% previous forecast also favored the risk-on mood.

Amid these plays, Wall Street closed mixed and the S&P 500 Futures remain indecisive by the press time.

Looking forward, a lack of major data/events could keep restricting short-term DXY moves but firmer US Treasury bond yields favor the bulls. Even so, the US Pending Home Sales for November which holds the market consensus of 0.6% versus -4.6% previous readings could decorate the calendar.

Technical analysis

Tuesday’s bullish Doji candlestick suggests further recovery of the US Dollar Index unless the quote drops back below the recent low of 103.88.