US Dollar sinks as King Dollar falls off its pedestal

•  The Greenback slides to a one-month-low. 
• US yields, which were the main driver for the Greenback rally, are now turning against the US Dollar. 
• The US Dollar Index is at risk of having its worst week in over three months. 

The US Dollar (USD) is getting gutted by the markets after US yields soared to a new multi decade high. It almost sounds Shakesperian as it was those same yields that have supported the summer rally in the Greenback from July up until mid-October. As yields in the 10-year benchmark breached the psychosocial 5% level, the Greenback got sold across the board and made the US Dollar Index incur its biggest intraday loss since July.  

On the economic data front, some further moves might be anticipated with the Purchase Managers Index (PMI) numbers for October due to come out. Markets will get the chance to have a look how the leading indicator behaves and is telling us in terms of outlook for the US economy in the near future. Especially the Services component could be a catalyst as it was previously just above 50, and a break below 50 would mean an economy in contraction with more US Dollar weakness to be factored in. 

Daily digest: US Dollar focused on PMI

• Around 12:55 GMT the US Redbook Index is due. The year-over-year previous number was at 4.6% with no expectations pencilled in.
• Around 13:00 the Case Shiller Home Price Index for August is due to print its yearly performance number. Previous was at 0.1%. 
• Main event for this Tuesday is at 13:45 GMT with the PMI numbers for the Manufacturing, Services and Composite Index: Manufacturing is expected to head lower into contraction from 49.8 to 49.5. Services are expected to join the contraction regime by heading from 50.1 to 49.9. The Composite was at 50.2, and is expected to head into contraction as well. 
• Around 14:00 GMT, the Richmond Fed Manufacturing Index for October is due to come in with the previous number at 5 and expectations for 8.
• The US Treasury will try to auction a 2-year Note in the bond market. 
• Equities are in the green, though nothing convincing. In Asia none of the major indices is up over 0.50%. IN Europea very mixed numbers as the European PMI numbers were better, but still in contraction below 50 on all components. US futures are slightly in the green, ahead of Microsoft and Alphabet earnings. 
• The CME Group’s FedWatch Tool shows that markets are pricing in a 98.4% chance that the Federal Reserve will keep interest rates unchanged at its meeting in November. 
• The benchmark 10-year US Treasury yield trades at 4.81% and briefly broke above 5.05% on Monday, a multi-year high. Although yields have retreated quite quickly, the fact that the pain threshold has been breached, could be a sign on the wall of more pain to come for the bond market. 

US Dollar Index technical analysis: King Dollar has fallen

The US Dollar lost its status as King Dollar after US yields, specifically the US 10-year yield, broke above 5%. In financial markets often 5% is seen as the pain threshold where, once above, red lights will start to flash in terms of recession possibilities, shrinking economy and a stand still or contraction growth. With the US PMI numbers later this Tuesday, risk at hand is that the US Dollar Index might add another leg lower to its losses for this week.

In order to recover, the DXY needs to break back above 105.88 and preferably even break above the high of Monday at 106.33. Once that is the case, Dollar bulls are reassured that plenty of Greenback is in play and this correction was just a blip on the hot plate. On the high end 107.20 still remains the level to beat for the year. 

On the downside, the recent resistance at 105.88 did not do a good job supporting any downturn and now completely has lost its importance. Instead, look for 105.12 to keep the DXY above 105.00. If that fails to do the trick, 104.33 will be the best level to look for resurgence in US Dollar strength, as it aligns with the 55-day Simple Moving Average (SMA) as a support level.