US Dollar Index stays defensive above 95.00 amid softer yields

• DXY seesaws around 16-month high, following Friday’s pullback.
• Treasury yields remain pressured, consolidate the strongest rebound in two months.
• US Consumer Sentiment, Fedspeak tries to placate reflation fears, Fed rate hike woes.
• US Retail Sales will be the key, risk catalysts can entertain short-term traders.

US Dollar Index (DXY) bulls take a breather after posting the biggest weekly run-up since August. That said, the greenback gauge pulled back from a 16-month high the previous day, taking rounds to 95.10 during Monday’s Asian session.

Softer data poured cold water on the face of Fed rate hike expectations on Friday, taking down the US Treasury yields and the DXY. On the same line were the policymakers’ efforts to reject inflation fears and push for more stimulus.

US Michigan Consumer Sentiment Index dropped to the 10-year low of 66.8 the previous day, considering the flash readings for November. The economic data raised expectations of easy Fed policy moves even as the rising inflation and a lack of policy response to address it were cited as the main reasons for the fall, per the Australia and New Zealand Banking Group (ANZ).

Elsewhere, US Treasury Secretary Janet Yellen and Federal Reserve Bank of Minneapolis President Neel Kashkari tried to tame reflation woes in their latest speeches and favored market sentiment, which in turn weigh on the US bond coupon and the US Dollar Index. While US Treasury Secretary Yellen defied chatters that the incoming stimulus will fuel more inflation, Fed’s Kashkari reiterates that the inflation run-up is ‘transitory’.

On a different page, the US policymakers are moving forward in the stimulus talks but no concrete announcements have been spotted of late. Recently, US Senate Majority Leader Chuck Schumer urged President Joe Biden administration to approve fuel sales from the nation's Strategic Petroleum Reserve (SPR).

Against this backdrop, US 10-year Treasury yields remain depressed around 1.56%, down 1.6 basis points (bps) whereas the S&P 500 Futures print 0.20% intraday gains at the latest.

Looking forward, NY Empire State Manufacturing Index for November, expected 20.2 versus 19.8, may direct intraday moves. However, major attention will be given to Tuesday’s Retail Sales and Fedspeak for a clearer view.

Technical analysis

A sustained upside break of an ascending resistance line from March 31, now support around 94.78, directs the US Dollar Index bulls towards June 2020 lows near 95.70.