US Dollar Index bears keep the reins near 104.50, ignores firmer US Treasury bond yields

• US Dollar Index stays depressed around six-month low, retreats from one-week high.
• Hawkish ECB talk, firmer German data and a light calendar at home probe DXY bulls.
• US Treasury bond yields remain firmer for the third consecutive day.
• US housing data, risk catalysts can entertain traders ahead of Friday’s US Core PCE Price Index.

US Dollar Index (DXY) retreats to 104.60 during the early hours of Tuesday’s trading, after snapping two-day rebound the previous day. The greenback’s gauge versus the six major currencies remains pressured despite firmer US Treasury bond yields as a light calendar and hawkish statements from the European Central Bank (ECB) officials join firmed German data to weigh on the DXY.

That said, ECB President Christine Lagarde highlighted the need for aggressive rate hikes when others are trying to tame the hawks. The majority of the ECB policymakers followed President Lagarde and backed further rate increases, which in turn propelled EUR/USD prices on Monday and weighed on the US Dollar. Notable among them were Vice-President Luis de Guindos and the ECB board members, Gediminas Simkus and Peter Kazimir.

Elsewhere, the US Dollar Index (DXY) began the week on a back foot as downbeat US PMIs for December raised doubts about the US Federal Reserve’s (Fed) hawkish bias. However, fears surrounding the global economic slowdown, mainly due to the higher rates and inflation fears, underpinned the US Treasury bond yields and weighed on the equities, which in turn helped DXY of late.

Amid these plays, the US 10-year Treasury yields grind higher after a two-day run-up whereas Wall Street closed in the red.

Looking forward, US Building Permits and Housing Starts could join Germany’s Producers Price Index (PPI) data to direct immediate moves. However, major attention will be given to the Fed’s preferred inflation gauge, namely Friday’s US Core Personal Consumption Expenditure (PCE) – Price Index for December, expected 4.6% YoY versus 5.0% prior.

Technical analysis

US Dollar Index remains sidelined between the 10-DMA and a previous resistance line from November 21, respectively near 104.60 and 104.15.