US Dollar Index retreat from fortnight high towards 96.00 as yields ease

• DXY snaps three-day uptrend to step back from two-week top.
• US 10-year Treasury yields resume downtrend after positive week-start.
• Market sentiment sours amid fears of imminent Russian invasion of Ukraine, February 16 is the widely talked date.
• US PPI, NY Manufacturing survey data will decorate the calendar but risk catalysts, Fedspeak are the key.

US Dollar Index (DXY) begins Tuesday on a back foot while retreating from a fortnight top 96.20 during the Asian session. In doing so, the greenback gauge drops 0.07% intraday to print the first daily loss in four, tracking the downbeat US Treasury yields.

Downbeat signals over the Russia-Ukraine story joined increasing odds of the 0.50% rate hike in March to keep the DXY bulls in comments during the last few days. However, the market’s indecision and a light calendar seem to trigger the latest pullback of the US Dollar Index.

On the other hand, headlines covering Russian Foreign Minister Sergey Lavrov initially helped the markets to stay optimistic over no imminent fears of the Russia-Ukraine war, as he showed likes for the US proposals. However, comments like, “EU and NATO responses have not been satisfactory,” kept the risk-off mood high.

Also challenging the market sentiment were comments from St. Louis Fed President James Bullard who repeated his call for 100 basis points (bps) in interest rate hikes by July 1 by citing the last four inflation reports which show broadening inflationary pressures.

Further, the CME FedWatch Toll suggesting around 61% probabilities for 50-75 basis points (bps) of a rate hike during the March meeting also weigh on the sentiment.

While portraying the mood, the US Treasury yields consolidate the previous day’s recovery moves with the fresh drop to 1.972%, down 2.4 basis points (bps), whereas the S&P 500 Futures print mild losses at the latest. On Monday, the bond coupons regained upside momentum after stepping back from a 2.5-year high on Friday whereas the Wall Street benchmark closed in the red, despite mildly positive week-start performance.

That said, the DXY pullback seems to have a limited life as geopolitical fears join hawkish Fed concerns.

In addition to the risk catalysts, the US Producer Price Index (PPI) for January, expected 9.1% YoY versus 9.7% prior, as well as the Empire State Manufacturing Index for February, bearing the market consensus of 12 versus -0.7% previous readouts, will also direct DXY move.

Technical analysis

A convergence of the 21-DMA and 50-DMA restricts the immediate downside of the US Dollar Index around the 96.00 round figure. Until then, buyers keep their eyes on November 2021 peak surrounding the 97.00 round figure.