US Dollar Index gives away some gains, drops to 96.70

• DXY comes under mild pressure following recent peaks.
• US markets return to activity post-Thanksgiving holiday.
• There will be no data releases in the US calendar on Friday.

The greenback, when tracked by the US Dollar Index (DXY), sheds some ground and revisits the 96.70 region on Friday.

US Dollar Index looks to yields

The index adds to Thursday’s small losses and retests the 96.70 region, as US markets are expected to return to the normal activity following the Thanksgiving holiday. It is worth recalling that the stock market and the bonds market will see a reduced activity on Friday and close at 6pm GMT and 7pm GMT, respectively.

In the meantime, the broad backdrop for the dollar remains constructive and supported by firm expectations of a lift-off in rates by the Federal Reserve at some point in H2 2022. In addition, the pace of the current QE tapering could be accelerated depending on the performance of the inflation.

The small drift lower in the buck comes despite the moderate drop in US yields, where the 10y note drops below 1.55% and the 30y breaks below 1.90%.

No data releases scheduled in the US calendar on Friday will leave the attention to the speech by the ECB’s C.Lagarde in the European morning.

What to look for around USD

The index clinched new cycle tops in the vicinity of 97.00 earlier in the week. The intense move higher in the buck remains well underpinned by the “higher-for-longer” narrative around current elevated inflation, which in turn lend wings to US yields and bolsters speculations of a sooner-than-estimated move on interest rates by the Federal Reserve. Further support for the dollar comes in the form of the solid recovery in the labour market, Biden’s infrastructure bill and positive results in US fundamentals.

Eminent issues on the back boiler: US-China trade conflict under the Biden’s administration. Debt ceiling issue. Geopolitical risks stemming from Afghanistan.

US Dollar Index relevant levels

Now, the index is retreating 0.10% at 96.68 and a break above 96.93 (2021 high Nov.24) would open the door to 97.00 (round level) and then 97.80 (high Jun.30 2020). On the flip side, the next down barrier emerges at 95.51 (low Nov.18) followed by 94.96 (weekly low Nov.15) and finally 94.56 (monthly high Oct.12).