US Dollar Index regains 96.00 mark as coronavirus, Fed chatters favor yields

• DXY consolidates the previous day’s losses, keeps bounce off weekly low.
• US inflation expectations rise ahead of US CPI, sooner Fed rate hike calls grow.
• Market fears relating to Omicron, geopolitics also underpin US dollar’s safe-haven demand.
• US Weekly Jobless Claims may offer intermediate clues, risk catalysts are the key.

US Dollar Index (DXY) defends 96.00 during a corrective pullback from the weekly low amid early Thursday. The greenback gauge dropped the most in a fortnight the previous day but the return of the risk-off mood seems to challenge the bears of late.

A four-day rebound of the US inflation expectations propels market chatters over the Fed rate hike and fuels the US Treasury yields as well as the US Dollar Index (DXY). Also weighing on the bonds could be the geopolitical headlines concerning China, Russia and Iran.

That said, US Assistant Secretary of Defense for Indo-Pacific Security Affairs Ely Ratner said, “Bolstering Taiwan's self-defenses is an ‘urgent task’ and an essential feature of deterring China”. On the other hand, US and Israel discuss Iran’s diplomacy while Washington and Kremlin remain at loggerheads over the Ukraine issue.

Furthermore, the return of the virus-led activity restrictions in Germany, France and the UK renews COVID-19 fears, reversing the previous optimism after major vaccine producers cited booster shots as effective to tame Omicron.

It’s worth observing that a strong print of October’s US Job Openings and Labour Turnover Survey (JOLTS), 11.033M versus 10.438M, favor odds of the sooner Fed rate hike, as backed by the Reuters poll.

Amid these plays, the US 10-year Treasury yields rise 1.7 basis points (bps) to 1.52%, up for the fourth consecutive day, whereas S&P 500 Futures print mild losses to challenge the three-day uptrend.

Looking forward, the weekly prints of US jobs-related data will join the inflation and virus updates to entertain the markets but nothing more important than Friday’s US Consumer Price Index (CPI).

Technical analysis

Despite bouncing off a weekly low, US Dollar Index needs a clear break of the 21-DMA and the previous support line from early November, respectively around 96.05 and 96.35, to recall the bulls. On the contrary, a three-week-old rising trend line near 95.60 challenges the bears.