• DXY takes a breather after retesting 16-month tops on Friday.
• Improving mood on the Asian indices caps the upside in the dollar.
• RSI has turned lower, backing the pullback in the US dollar index.

US Dollar Index (DXY) is paring back gains, as the sellers return on Monday after a positive start to a new week.

The improving market mood could be linked to the latest down in the spot, as investors look past the resurfacing worries over covid curbs in Europe after Austria announced a nationwide lockdown last Friday.

Expectations of more stimulus coming in from China lifted the overall market mood, despite the People’s Bank of China (PBOC) leaving the loan prime rate (LPR) unchanged at 3.85% yet again.

Despite the retreat from higher levels, the downside remains cushioned, as the US Treasury yields snap its three-day downtrend and rebound 1% on the 10-year time frame.

Technically, the index needs to find a strong foothold above the horizontal trendline resistance at 96.25 to unleash the additional upside momentum.

The 14-day Relative Strength Index (RSI) has turned slightly lower while near 65.50, justifying the recent pullback in the price.    

If the correction picks up pace, then a further drop towards the bullish 21-Daily Moving Average (DMA) at 95.85 cannot be ruled out.

DXY: Daily chart

DXY: Additional levels