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  • The dollar index hits multi-month highs above 90.50. 
  • The US Treasury yields rise, crowding out dollar shorts.
  • The dollar index looks set to challenge an SMA hurdle.

The dollar index (DXY), which tracks the greenback’s value against majors, looks north as US Treasury yields rise, shaking out elevated shorts. 

The 10-year yield has jumped to fresh 10-month highs near 1.15% and has gained more than 20 basis since last Tuesday, causing a steepening of the bond yield curve to the highest level in three years and a temporary shakeout of elevated short US dollar positions, according to MUFG Bank’s analysts. Expectations for a bigger US fiscal stimulus package under Biden’s leadership, coupled with the oil rally, have lifted inflation expectations, putting upward pressure on yields. 

The implied short US dollar futures positioning for Asset Manager/Institutional & Leveraged Funds increased to a new record of 654,703 contracts in the week ended Jan. 5, marking a notable increase from the tally of 524,284 contracts observed last month. 

The dollar index found an interim low near 89.21 on Jan. 6 and is currently seen at 90.55. The index hit a high of 90.73 on Monday. 

DXY’s daily chart shows a falling wedge breakdown, a bullish reversal pattern, and an above-50 or bearish reading on the Relative Strength Index. 

Technical levels