Prior to US Data, the US Dollar Index consolidates recent gains above a 20-year high

US Dollar Index (DXY) bulls take a pause around a 20-year high, recently falling to 104.75 as sluggish markets cause consolidation of recent rapid swings, predominantly in favor of the dollar, during Friday's Asian session.

The dollar index has risen for three straight days to reestablish a multi-year high at 105.00. The underlying dynamics may be related to the market's anxieties about inflation and growth, as well as the Fed's faster/heavier rate hikes and covid/geopolitical concerns.

Nonetheless, the most recent decline in the DXY is influenced by the rebound in US Treasury yields from a two-week low, as well as moderately bid stock futures. The US 10-year Treasury yields exhibit a corrective pullback after touching a two-week low the day before, around 2.86 percent as of press time, whilst the S&P 500 Futures exhibit modest gains while licking their wounds near a one-year low.

The US Producer Price Index (PPI) matched expectations of a 0.5% MoM increase and kept inflation fears on the table the previous day. However, Fed Chairman Jerome Powell reaffirmed the expectation that the Fed will raise interest rates by a half-point at each of the next two policy meetings. As markets anticipate a 75-basis-point (bps) rate hike, the same factor may have caused the rates' comeback. On the same line, San Francisco Fed President Mary Daly stated, "Is it fifty, twenty-five, or seventy-five? These are matters that I'll discuss with my colleagues, but my starting point is that we don't want to go so swiftly or abruptly as to startle the American people.

In the future, DXY bulls will search for more evidence to validate the Fed's 75 basis point rate hike, which highlights today's preliminary readings of US Michigan Consumer Sentiment data for May, which is predicted to be 64 vs 65.2 before. Risk catalysts, such as covid worries from China and geopolitical events regarding Russia and Ukraine, are also significant for the US Dollar Index.

Technical Evaluation

Despite the recent dip, the DXY's short-term downside is supported by the November 2002 lows and the last month's high, which are near 104.10 and 103.95, respectively. In contrast, bulls are well-positioned to attempt the high of 107.31 from December 2002.