Dollar Index continues to diverge from UST yields, focus on CPI

• The dollar index (DXY) rose to three-week highs in Asia despite the overnight drop in the US treasury yields.
• DXY could close above the 100-week moving average if the CPI betters estimates.

The USD exchange rate, as represented by the dollar index, clocked a three-week high of 95.65 in Asia, having rallied 0.54 percent yesterday.

It is worth noting that the recent dollar rally is not backed by rising yields. For instance, the 10-year treasury yield is currently trading at 2.92 percent, down 10 basis points from the high of 3.02 percent seen on August 1. During the same time frame, the DXY has gone up from 94.49 to 95.65.

The divergence puts a question market on the sustainability of the recent gains the DXY.

Focus on the US CPI

The data, due today at 12:30 GMT, is expected to show the inflation as represented by the consumer price index rose 0.2 percent in July.

An above-forecast print will likely lift the treasury yields and help the greenback close above the 100-week MA of 95.50.

On the other hand, a below-forecast print would push yields lower, leading to a broad-based USD sell-off.

Dollar Index Technical Levels

At press time, the dollar index is trading at 95.55.

Resistance: 95.65 (July high), 96.04 (50 percent Fibonacci retracement of 2018 sell-off), 96.70 (June 2016 high)

Support: 95.37 (200-week moving average), 95.07 (10-day moving average), 94.60 (50-day moving average)