US Dollar Index portrays three-day uptrend despite sluggish Treasury bond yields

• US Dollar Index picks up bids to refresh intraday high, stays firmer at one-week top.
• Softer US trade numbers, inflation expectations fail to cool down hawkish Fed bets.
• Hopes of China easing its Zero-Covid policy favor cautious optimism even as global economic slowdown looms.
• Mixed sentiment, light calendar may restrict DXY moves ahead of next week’s FOMC.

US Dollar Index (DXY) stays mildly bid around 106.65 during Wednesday’s Asian session, up for the third consecutive day amid mixed clues. In doing so, the greenback’s gauge versus the six major currencies pokes the highest level in a week despite a light calendar.

That said, China's state media underpins the market’s optimism by showing the dragon nation’s readiness to ease the three-year-old Zero-Covid policy. "Beijing readies itself for life again," read a headline in the government-owned China Daily newspaper, adding that people were "gradually embracing" newfound freedoms, reported Reuters.

On the same line could be the downbeats prints of the US inflation expectations, as per the 10-year and 5-year breakeven inflation rates per the St. Louis Federal Reserve (FRED) data. That said, the inflation precursors dropped for the second consecutive day on Tuesday.

Additionally, softer prints of US trade numbers should have also probed the US Dollar Index bulls. US Goods and Services Trade Balance deteriorated to $-78.2 billion versus $-79.1 billion expected and $-73.28 billion prior.

However, the last week’s firmer US employment data and Monday’s strong US ISM Services PMI seemed to command major attention and hence keep the hawkish bets on the Fed’s next move intact, which in turn favored DXY bulls.

Furthermore, the warnings of grim economic conditions from multiple US banks and downbeat earnings weighed on the market sentiment and allowed the US Dollar to stay firmer. Among them were the United States Heads of Goldman Sachs, Bank of America Corp and JPMorgan Chase. Additionally, Bloomberg Economics also forecasted the lowest economic growth since 1993, to 2.4% for 2023.

Against this backdrop, the S&P 500 Futures seesaw near 3,950, mildly bid of late, whereas the US 10-year Treasury yields cling to 3.54% mark after the previous day’s downbeat performances of Wall Street and the key Treasury bonds.

Looking forward, DXY remains on the bull’s radar as traders hope the Fed stays away from a pivot. However, headlines from China and an absence of Fed talks could restrict the US Dollar Index moves ahead of the next week’s Federal Open Market Committee (FOMC).

Technical analysis

Although recently firmer MACD and RSI tease US Dollar Index buyers, a 12-day-old downward-sloping resistance line, around 106.55 by the press time, restrict immediate DXY upside. Meanwhile, lows marked in August around 104.65 precede the 104.00 threshold to challenge the downside moves.