US 10-year Treasury yields begin to decline after a positive week-start.
Fears of Russian invasion of Ukraine are causing market sentiment to plummet. February 16 is the most talked about date.
US Manufacturing survey data and US PPI will be used to decorate the calendar. However, Fedspeak, risk catalysts and Fedspeak are key.
US Dollar Index (DXY), starts Tuesday on the back foot, while retreating from a fortnight high of 96.20 during Asia session. The greenback gauge fell 0.07% intraday, following the decline in US Treasury yields.
The DXY bulls have been commenting on the Russia-Ukraine story, which has generated negative signals. The latest pullback in the US Dollar Index seems to be due to market indecision and light calendar.
However, the headlines about Russian Foreign Minister Sergey Lavrov helped markets remain optimistic over no imminent Russian-Ukraine War fears, because he seemed to like the US proposals. However, remarks like “EU and NATO responses are not satisfactory” kept the risk-off mood high.
St. Louis Fed President James Bullard also questioned the market sentiment. He reiterated his call for 100 basis point (bps) interest rate increases by July 1. He cited the four most recent inflation reports that show a broadening of inflationary pressures.
The sentiment is further influenced by the CME FedWatch Toll, which suggests around 61% probability for 50-75 basis point (bps) rate increases during March’s meeting.
The mood is reflected in the US Treasury yields, which have dropped to 1.972% (down 2.4 basis points) from the previous day. However, the S&P 500 Futures are showing mild losses. The bond coupons gained upside momentum on Monday after falling from a 2.5 year high on Friday, while the Wall Street benchmark closed down in the red despite a mildly positive week-start.
However, the DXY pullback appears to be limited in its life span as geopolitical concerns join hawkish Fed concerns.
The risk catalysts include the US Producer Price Index (PPI), which is 9.1% YoY, compared to 9.7% previously. Additionally, the Empire State Manufacturing Index for Feb, which has the market consensus at 12 versus -0.7% prior readouts, will direct DXY movement.
Analyse technique
The immediate downside to the US Dollar Index is limited by convergence of the 21DMA and 50DMA around the 96.00 figure. Buyers should keep an eye on the November 2021 peak around the 97.00-round figure.
