US Dollar Index stays firmer past 105.00 as DXY traders await US inflation, Fed’s action

• US Dollar Index stays firmer after snapping two-week downtrend.
• Upbeat US data keeps Fed hawks on the table even as 50 bps rate hike is already given.
• Slew of economic data could trigger more volatility and favor DXY bulls ahead of the key data/events.
• Monday’s light calendar may portray a softer start to the key week.

US Dollar Index (DXY) extends the previous weekly gains, the first in three, as it picks up bids to refresh its intraday high around 105.10 during early Monday. In doing so, the greenback gauge portrays the market’s rush toward the US Dollar ahead of the key data/events.

That said, the greenback’s latest run-up could be linked to the talks of the US recession, as well as recently firmer US data.

The economic slowdown fears could be linked to the yield curve inversion as the US 10-year Treasury bond yields and the two-year bond coupons portray a negative difference, suggesting the market’s preference for the short-term US Treasury bonds that print the recession woes.

Recently, US Treasury Secretary Janet Yellen said, “There's a risk of a recession, but it certainly isn't something that is necessary to bring inflation down.”

Talking about the data, US Producer Price Index (PPI) matched the market forecasts of 7.4% YoY for November versus 8.1% prior. Further, the Core PPI rose to 6.2% YoY versus 6.0% expected and 6.7% previous readings. Additionally, preliminary readings of the University of Michigan’s (UoM) Consumer Sentiment Index rose to 59.1 for December versus 53.3 market forecasts and 56.8 final readings for November. Moreover, the 1-year inflation expectations dropped to 4.6%, the lowest since September 2021 while compared to 4.9% expected whereas 5-10 year expectations were stable at 3.0%. It should be noted that the US ISM Services PMI improved to 56.5 versus 54.4 expected.

Amid these plays, the S&P 500 Futures print mild losses while tracking Friday’s downbeat close of Wall Street whereas the US 10-year Treasury yields remain firmer around 3.58%. It should be observed that the US 2-year Treasury bond yields flash 4.35% as the latest quote.

Moving on, the US Consumer Price Index (CPI) for November and the Federal Reserve’s (Fed) guidance on the rates, indirectly though, will be crucial for the DXY traders as bulls flex muscles. However, as the 0.50% rate hike is already priced-in, an absence of a major hawkish statement could recall the US Dollar bears. That said, a light calendar on Monday might result in an inactive day.

Technical analysis

Unless staying beyond the one-week-old ascending support line, around 104.70 by the press time, the US Dollar Index buyers may remain hopeful.