US Dollar Index: DXY rebounds even as United States Treasury bonds keep Bank of Japan-inflicted losses

US Dollar Index (DXY) licks its wounds around 104.10 during early Thursday. In doing so, the greenback’s gauge versus the six major currencies print the first daily gains in three, also consolidating the biggest fall in a week, as the United States Treasury bond yields remain firmer despite the latest consolidation in the market.

United States Treasury bond yields keep US Dollar Index firmer

The US Treasury bond yields remain firmer even as the stocks and other riskier assets trim recent gains, which in turn underpin the US Dollar Index (DXY) strength. The reason could be linked to the cautious mood ahead of today’s US Conference Board (CB) Consumer Confidence figures for December, expected at 101.00 versus 100.00 prior.

It’s worth noting that the DXY dropped the most in a week the previous day as the greenback traders feared less Japanese bond-buying of the US Treasury bonds due to the Bank of Japan (BOJ) action. Japan is the biggest holder of the US Treasury bonds and the latest move allows Tokyo to put more funds into the nation than letting it flow outside.

Yield curve inversion, cautious optimism weighs on DXY

United States Treasury bond yields rallied the previous day but the 10-year yields rose more than the two-year ones and hence reduced the yield curve inversion that suggests the receding odds of the recession and can weigh on the US Dollar Index (DXY). That said, the US 10-year Treasury yields grind near a three-week high of 3.69% while the two-year bond coupons stay firmer around 4.26% by the press time.

Elsewhere, hopes for China’s more investment, due to the World Bank’s cutting of growth forecasts for the dragon nation and the policymakers’ readiness to battle the recession fears, favor the market sentiment and weigh on US Dollar Index. On the same line could be the US Senate’s advancement of the $1.66 trillion government spending bill, as well as Japan’s upbeat economic forecasts.

US CB Consumer Confidence, risk catalysts eyed

Looking forward, an anticipated strength of the US Conference Board (CB) Consumer Confidence figures for December, expected at 101.00 versus 100.00 prior, could propel the US Dollar Index (DXY) amid sluggish markets. However, risk catalysts are also important for clear directions. Among them, headlines surrounding China, Japan and bond markets will be important. It's worth noting that the Federal Reserve's preferred inflation gauge, namely US Core Personal Consumption Expenditure (PCE) Price Index for November, expected 4.6% YoY versus 5.0% prior, appears this week's key even to watch for the DXY traders as hawks at the United States central bank seem to retreat as of late.

US Dollar Index technical analysis

US Dollar Index (DXY) bounces off a one-week-old ascending support line to portray the latest consolidation.

However, the 50-Hour Moving Average (HMA), pierces off the 100-HMA from above to portray the bear cross and suggest further downside of the greenback’s gauge versus six major currencies.

As a result, the aforementioned support line near 103.95 gains the major attention of the DXY traders as a break of which could quickly drag the US Dollar Index towards the monthly low of 103.43.

In a case where the DXY remains bearish past 103.43, the 103.00 and 102.00 round figures could entertain traders before highlighting May’s low near 101.30.

On the flip side, the previously mentioned HMAs guard the immediate upside of the US Dollar Index near 104.30-35.

Following that, a downward-sloping trend line from December 08, close to 104.80 by the press time, will be crucial for the DXY traders as a break of which will give control to the bulls.

Overall, DXY remains bearish despite the latest rebound.

US Dollar Index: Hourly chart

Trend: Further downside expected