• US Dollar Index picks up bids to consolidate the biggest daily loss in eight day.
• Firmer yields, hawkish Fed bets and Asian diplomats’ rejection to tighten policies underpin the US dollar’s demand.
• Upbeat prints of US Retail Sales, preliminary CSI and 5-year inflation expectations needed to defend the DXY bulls.

US Dollar Index (DXY) reverses the previous day’s pullback from a two-week high despite staying sluggish around 112.50 during Friday’s Asian session.

That said, the greenback’s gauge versus the six major currencies dropped the most in eight days on Thursday even as the US Consumer Price Index (CPI) figures came in firmer and the Fed bets also priced in 75 bps move, not to forget firmer US Treasury yields.

The DXY’s latest inaction could be linked to the mixed mood in Asia as the Japanese and Chinese policymakers ignore the International Monetary Fund’s (IMF) push for higher rates. On the same line could be the People’s Bank of China (PBOC) Governor Yi Gang’s readiness for strong stimulus.

Alternatively, US 10-year Treasury yields remain firmer around 3.96% after snapping a two-day downtrend to poke the October 2008 levels. The firmer bond coupons portray the market’s recession fears and rush towards the risk-safety but failed to propel the US dollar on Thursday. Additionally favoring the DXY could be the political pessimism in the UK amid uncertainty over the mini-budget.

A third consecutively softer US Consumer Price Index (CPI) jostled with the 40-year high Core CPI and drowned the US Dollar Index despite hawkish Fed bets. Talking about the data, the US CPI rose to 8.2% versus 8.1% market forecasts but eased as compared to the 8.3% prior. The CPI ex Food & Energy, mostly known as the Core CPI, jumped to 6.6% while crossing the 6.5% expectations and 6.3% previous readings.

While portraying the mood, Wall Street closed with notable gains but S&P 500 Futures remain directionless and hence challenge the DXY traders ahead of the key US Retail Sales for September, expected 0.2% MoM versus 0.3% prior. Also important will be the preliminary readings of the Michigan Consumer Sentiment Index (CSI) and the University of Michigan’s (UoM) 5-year Consumer Inflation Expectations for October.

Also read: US Retail Sales Preview: Positive surprises eyed for dollar bulls to regain poise

Technical analysis

Multiple failures to provide a daily closing beyond 113.30 keeps the US Dollar Index bears hopeful even if the 21-DMA level of 112.20 restricts immediate downside.