US Dollar sees gains as US traders return and yields climb

• The DXY Index rose near 103.40 but was rejected by the 100-day SMA.
• Rising US yields made the US Dollar gain interest.
• Dovish bets on the Fed remain high.

The US Dollar (USD) started the trading session by surging to the 103.40 mark, quickly being pulled back by the resistance of the 100-day SMA. This swift rebound was primarily due to US traders returning from their holiday, further catalyzed by a progressive rise in yields. 

The markets are anticipating that the Fed’s easing cycle will begin in March, followed by another rate cut in May, which may limit any upside for the US Dollar. Despite higher CPI numbers, the market remains stubborn and expects the Fed to initiate its easing cycle sooner rather than later, and the soft PPI readings gave markets a reason to bet on a less aggressive approach. 

Daily digest market movers: US Dollar finds strength as US traders return, bond yields rise

• No significant reports were released during the session.
• US bond yields are edging higher, with the 2-year yield at 4.20%, the 5-year yield at 3.90% and the 10-year yield at around 4%.
• Forward-looking markets anticipate that for the upcoming January meeting, the CME FedWatch Tool points toward no hike, with low probabilities of a rate cut. Additionally, markets are now pricing in higher odds of rate cuts in March and May 2024.
• This week, the US will release Retail Sales figures from December and the Fed’s Beige Book, which may have an impact on those expectations.

Technical Analysis: DXY gets additional ground must regain the 100-day SMA to confirm a reversal

The Relative Strength Index (RSI), showcasing a positive slope in positive territory, points toward increasing bullish momentum. The Moving Average Convergence Divergence (MACD) affirms this trend with rising green bars, suggesting a build-up of buying pressure. The ongoing bullish control is further emphasized by the asset standing above the 20-day Simple Moving Average (SMA) - a sign of short-term strength.

On the contrary, the index's position below the 100-day and 200-day Simple Moving Averages (SMAs) portrays an overarching bearish stance. This position indicates that despite short-term bullish advances, sellers still hold a broader market control and that buyers must regain the 100-day average to start considering the upward movements a reversal.

Support levels: 103.00, 102.80, 102.50.
Resistance levels: 103.40 (100-day SMA), 103.60, 103.80.