US Dollar Index fades upside momentum as yields retreat despite China Covid woes

• US Dollar Index snaps two-day uptrend, bounces off intraday low of late.
• US 10-year Treasury bond yields print the first intraday loss in five at 1.5-month high.
• Multiple nations announced requirement of COVID-19 tests for Chinese travelers.
• Mixed US data, lack of major catalysts triggered consolidation despite risk-off mood.

US Dollar Index (DXY) holds lower grounds despite bouncing off the intraday bottom early Thursday in Europe. In doing so, the greenback’s gauge versus the six major currencies prints the first daily loss in three around 104.32 by the press time.

DXY’s latest pullback could be linked to the market’s rush towards the Yen and Swiss Franc, as well as the Gold prices, amid sour sentiment and mostly downbeat US data. The same could be linked to the retreat in the US Treasury bond yields from a multi-day high.

That said, the benchmark US 10-year Treasury yields dropped 2.2 basis points to 3.86% by the press time, after rising the most since October 19 the previous day. With this, the key bond coupons retreat from the six-week high while snapping a four-day uptrend.

Talking about the key risk-negative headlines, fresh Covid-linked prerequisites for Chinese travelers, amid doubts over Beijing’s reporting of data and a  jump in the virus numbers weigh on sentiment. On the same line could be Russia’s rejection of peace with Ukraine unless it accepts the treaty allowing additional territories, as well as an escalated war in the city of Kherson.

On Wednesday, US Pending Home Sales for November dropped to -37.8% YoY versus -36.7% expected and -37.0% previous readings while the Richmond Fed Manufacturing Index for December improved to 1.0 versus -4.0 anticipated and -9.0 prior.

Amid these plays, Wall Street closed in the red but S&P 500 Futures remain lackluster despite the downbeat performance of the Asia-Pacific shares.

Looking forward, weekly prints of the US Initial Jobless Claims and Chicago PMI for December will be eyed for short-term directions but major attention will be given to the risk catalysts and the bond market moves during the year-end inaction.

Technical analysis

US Dollar Index remains sidelined between the 21-DMA resistance and a two-week-old ascending support line, respectively near 104.60 and 104.00 by the press time.