US Dollar Index defends 96.00 during pre-Christmas dull markets

• DXY pauses four-day declines while bouncing off one-week low, stays pressured though.
• Firmer yields, strong data seems to have tested greenback bulls.
• Upbeat sentiment, holiday mood and off in the West will test momentum traders.

US Dollar Index (DXY) bears take a breather around the weekly low near 96.00 during Friday’s Asian session.

The greenback gauge dropped consecutively in the last four days before bouncing off 95.98-98 support confluence. Adding strength to the corrective pullback could be the rebound in the US 10-year Treasury yields and consolidation of the latest losses during the holiday mood.

The US 10-year Treasury yields refreshed the monthly high to 1.50%, before ending Thursday’s North American session with 3.5 basis points (bps) of an upside to 1.493%.

The market’s rush towards selling US Treasury bonds could be linked to the mixed updates concerning the South African variant of covid, namely Omicron, as well as the US stimulus, not to forget strong US data. It should be noted, however, that positive updates over the covid strain’s cure and studies taming fears of hospitalizations keep the market’s sentiment mildly positive and guard the DXY’s immediate upside.

The US Food and Drug Administration (FDA) also approved Merck's Covid-19 pill on Thursday, a day after approving Pfizer’s pill to battle the Omicron on Wednesday. Earlier in the week, US Military also conveyed news of developing a single cure for covid and all variants. Also on the positive side were the studies showing Omicron has lesser scope hospitalization. On the contrary, the French cancellation of orders for Merck’s pill, citing notably lesser effect than promoted, joins a steady rise in Omicron cases to challenge the market optimism.

Elsewhere, US President Joe Biden and House Speaker Nancy Pelosi remain hopeful of getting the Build Back Better (BBB) plan through the House even as Senator Joe Manchin opposes the bill. As per the latest news from CNN, “Sen. Joe Manchin effectively put an end to negotiations over the current version of the Build Back Better Act, in part over concerns that some provisions might exacerbate inflation. But many economists believe its effect on inflation would be marginal.”

Furthermore, upbeat prints of the Fed’s preferred gauge of inflation, namely the Core PCE Price Index, not to forget Durable Goods Orders and Michigan Consumer Sentiment Index, also favored the Treasury yields and probed US Dollar Index bears.

Moving on, an off in the majority of the Western markets and a light calendar joins holiday mood elsewhere to restrict DXY moves.

Technical analysis

The 200-SMA on the four-hour chart joins an upward sloping trend line from November 30 to act as strong support around 96.00, a break of which could quickly refresh the monthly low. On the contrary, the US Dollar Index rebound need validation from the 96.35 resistance level to convince the short-term buyers.