US Dollar Index looks to Treasury yields for fresh impulse at 16-month top

• DXY stays sidelined after refreshing multi-month top during two-day uptrend.
• Fed rate hike bets propel US Treasury yields, greenback.
• US bond markets to resume trading after Veterans Day holiday.
• Evergrande, China headlines can join US Michigan Consumer Sentiment to entertain traders.

US Dollar Index (DXY) bulls defend the 95.00 threshold while staying around the highest level since July 2020, recently easing to 95.12 amid Friday’s Asian session.

The greenback gauge jumped for the second consecutive day on Thursday as the US inflation-led boost continued pleasing the bulls even as an off in the bond markets probed the upside momentum. Headlines concerning China and Evergrande can also be considered as the reasons for the DXY run-up.

The benchmark US 10-year Treasury yields jumped the most in seven weeks on Wednesday, around 1.582% at the latest, after the US Consumer Price Index (CPI) rallied to a 31-year high, per details for October. The escalating price pressure joins the recently dumped ‘transitory’ phrase from the Fedspeak to help the Fed hawks expect a rate hike.

On the contrary, the European Central Bank (ECB) policymakers recently pulled back their economic forecasts and tried to justify the view that the inflation pressure in the bloc is temporary, requiring no change to the current rate. This joins the latest data line from Australia and the UK to enable some of the major central banks to defend easy money policies. Hence, the Fed’s first-mover advantage underpins the US dollar’s latest upside.

Elsewhere, the greenback’s safe-haven allure that gains importance amid growing concerns over China’s economic growth, mainly due to credit crisis for real-estate companies and power-cut problems. The same joins the Sino-American tussles over the phase 1 deal, Vietnam and Hong Kong to weigh on the market sentiment and favor the DXY bulls.

Amid these plays, S&P 500 Futures print 0.17% intraday gains by the press time whereas the Asia-Pacific stocks traded mixed at the latest.

Given the higher importance of the US Treasury moves, a sustained run-up in the yields can favor the US Dollar Index but the US Michigan Consumer Sentiment for November should be eyed too.

Read: US Michigan Consumer Sentiment Index Preview: Inflation’s dangerous impact

Technical analysis

US Dollar Index is up for challenging June 2020 lows near 95.70 until it stays beyond the 94.75 support confluence, including an ascending trend line from March 31 and September 2020 peak.