• DXY flips around the 16 month high, goes from the multi-day high to the end.
  • Treasury yields retreat as Biden-Xi talks begin, amid retail sales anxiety ahead of the United States.
  • US President Biden signs $ 1 trillion infrastructure bill, Fedspeak continues to struggle to tame inflation fears.
  • The focus of attention is US data, Sino-US discussions, and discussion of rate hikes.

The US Dollar Index (DXY) consolidates recent gains around the highest levels since July 2020, flashed the day before, falling to 95.48 Tuesday morning. The greenback’s gauge tracks US Treasury yields to describe the recent pullback amid mixed concerns.

That said, 10-year US Treasury yields fell 2.4 basis points (bps) to 1.597% at time of release, after the jump to refresh a three-week high.

The decline in Treasury yields could be linked to recent positive headlines from talks between US President Joe Biden and his Chinese counterpart Xi Jinping. US President Biden has said the US-China relationship is deeply important to the world. In the same vein, Chinese Xi said, “He stands ready to move Sino-US relations forward in a ‘positive direction’.”

The official signing by US President Biden of the $ 1 trillion infrastructure spending bill is also positive for sentiment.

It should be noted, however, that a jump in the U.S. Empire State Manufacturing index and inflation expectations are keeping the DXY bulls bullish ahead of October’s U.S. retail sales, which are expected to reprint the 0.7% growth in the month.

Read: US Retail Sales Snapshot: Win-win for the Dollar? Three scenarios, one negative dollar

Against this backdrop, the S&P 500 Futures moves away from a sluggish start to the week by Wall Street benchmarks, with slight gains. However, fears of a Fed rate hike and 31-year high inflation data from the US will amplify the rally in the US dollar index if US data comes in as stronger than expected.

Technical analysis

RSI overbought conditions challenge bulls in the US dollar index below June 2020 lows around 95.72. Pullback moves, however, remain smaller until they stay past the September 2020 peak of 94.74.