US Dollar Index renews three-week low on sluggish Treasury yields

  • US Dollar Index extends Friday’s losses to refresh multi-day bottom.
  • US stimulus hopes, China headlines weigh on US dollar’s safe-haven demand.
  • Fed’s Powell favored tapering but not the rate hikes.
  • Second-tier data eyed ahead of Thursday’s advance reading of Q3 GDP.

US Dollar Index (DXY) refreshes monthly low around 93.50, extending Friday’s losses as European traders brush their screens for Monday’s tasks.

The greenback gauge tracks downbeat US Treasury yields amid a quiet start to the key week including the first estimation of the US Q3 GDP.

The reason could be linked to the risk-on mood, mainly taking clues from US stimulus hopes and Evergrande-led relief in China. It should be noted, however, the last lot of the Federal Reserve (Fed) officials, including Chairman Jerome Powell, kept flashing the need for tapering despite staying away from the rate hike signals. Even so, markets seem to have digested the news long back and hence the latest reaction to the hawkish Fedspeak has been minimal.

Amid these plays, US 10-year Treasury yields drop one basis point (bp) to 1.642% while the S&P 500 Futures turn positive, poking record top marked on Friday.

Given the greenback sellers’ rejection of the Fed tapering concerns, firmer US GDP will extra support to the DXY should the growth numbers arrive firmer. However, soft numbers may well extend the latest bearish consolidation of the US Dollar Index.

Ahead of Thursday’s US GDP, today’s second-tier activity numbers and Wednesday’s Durable Goods Orders for September will join the aforementioned risk catalysts to entertain the DXY traders.

Technical analysis

US Dollar Index drops to the three-week low, battling one-month-old horizontal support and the 200-SMA. It’s worth observing that the US Dollar Index portrays a short-term falling wedge bullish chart pattern, on the four-hour play and hence confirmation of the same, with an upside break of 93.70 will theoretically hint at a fresh north-run towards the monthly high, also the yearly peak surrounding 94.55.  Alternatively, 200-SMA and the stated monthly support restrict short-term DXY declines around 93.55-50 before the wedge’s support line, close to 93.40.

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