US Dollar Index: Pullback in Treasury yields probes DXY bulls ahead of US Retail Sales

• DXY seesaws around 16-month top, eases from multi-day top of late.
• Treasury yields retreats as Biden-Xi talks begin, amid pre-US Retail Sales anxiety.
• US President Biden signs a $1.0 trillion infrastructure bill, Fedspeak keeps struggling to tame inflation fears.
• US data, Sino-American discussion and the rate hike chatters are in focus.

US Dollar Index (DXY) consolidates recent gains around the highest levels since July 2020, flashed the previous day, easing to 95.48 during early Tuesday. The greenback gauge tracks the US Treasury yields to portray the recent pullback amid mixed concerns.

That said, the US 10-year Treasury yields drop 2.4 basis points (bps) to 1.597% by the press time, following the jump to refresh a three-week top.

The retreat of the Treasury yields could be linked to the recent positive headlines from the talks between US President Joe Biden and his Chinese counterpart Xi Jinping. US President Biden said that US-China relation is profoundly important to the world. On the same line, China’s Xi mentioned, “Stands ready to move US-China relations forward in a ‘positive direction’”.

Also positive for the sentiment is US President Biden’s formal signing of the $1.0 trillion infrastructure spending bill.

It should be noted, however, that a jump in the US Empire State Manufacturing Index and inflation expectations keep the DXY bulls hopeful ahead of the US Retail Sales for October, expected to reprint the 0.7% MoM growth.

Read: US Retail Sales Preview: Win-win for the dollar? Three scenarios, only one dollar-negative

Against this backdrop, S&P 500 Futures part ways from a sluggish week-start by the Wall Street benchmarks, with mild gains. Though, fears of the Fed rate hike and 31-year high inflation data from the US will amplify the US Dollar Index run-up should the US data arrive as stronger-than-forecast.

Technical analysis

Overbought RSI conditions challenge US Dollar Index bulls below June 2020 lows surrounding 95.72. Pullback moves, however, remain less important until staying beyond the September 2020 peak of 94.74.