US Dollar Index directs four-day downtrend towards 103.00 despite firmer yields

US Dollar Index (DXY) remains on the back foot for the fourth consecutive day, refreshing a weekly low around 103.20 by the press time of Wednesday’s Asian session.

The greenback gauge’s latest weakness contrasts with the recently upbeat comments from Chicago Fed President Charles Evans. The reason could be linked to the market’s cautious optimism amid an absence of major data/events.

Fed’s Evans seems to have weighed on the market’s mood by renewing fears of a faster rate hike as the policymaker said, “(the Fed) Should raise rates to 2.25%-2.5% neutral range 'expeditiously'.” On Tuesday, Fed Chair Jerome Powell and a generally-hawkish St Louis Fed President James Bullard pushed for a 50 bps rate hike and weighed on the USD.

It’s worth observing that the previous day’s firmer US data underpinned the market’s risk-on mood as it joined multiple statistics from the UK and Eurozone to defy the growth concerns. That said, The preliminary Eurozone GDP for Q1 2022 rose past 5.0% YoY to 5.1% while also rising above 0.2% QoQ expectations to 0.3%. On the other hand, the US Retail Sales rose at a pace of 0.9% MoM in April, slightly better than the expected pace of 0.7% but softer than the upwardly revised 1.4% growth (from 0.5%). Recently, Japan’s preliminary readings of Q1 2022 GDP rose past -0.4% expectations to -0.2% QoQ whereas the Annualized GDP improved to -1.0% versus -1.8% forecasted.

Elsewhere, the Financial Times (FT) news that China diverts anti-poverty funds to covid testing as the crisis deepens joins the chatters over the European Commission’s (EC) plan to move away from Russian energy imports weighing on the market sentiment.

Amid these plays, the US 10-year Treasury yields rose 1.8 basis points (bps) to 2.988% whereas the S&P 500 Futures struggle for clear directions even as Wall Street posted heavy gains.

Looking forward, housing data from the US will join inflation numbers from Eurozone and Canada to entertain momentum traders. Though, Fedspeak and risk catalysts will be more important to follow for clear directions.

Technical analysis

A sustained break of the one-month-old rising trend line, around 104.67 by the press time, directs DXY bears towards an upward sloping support line from late March, close to 102.50.