US Dollar stalls, on track for its sixth consecutive day of gains.

The US Dollar (USD) extends its winning streak on Friday, with the DXY Index surpassing 107.00 for the first time in over two weeks, fueled by ongoing inflation pressures in the US and expectations of further monetary easing in key trading partners, China and the Eurozone.

The USD received a boost on Thursday after November’s Producer Price Index (PPI) data came in well above expectations. While this data didn’t alter the broader expectation of a 25 basis point rate cut by the US Federal Reserve next week, it did reduce some bets for additional cuts in 2025.

The Greenback also found support from prospects of further stimulus abroad. In Europe, ECB President Christine Lagarde acknowledged the possibility of a 50 basis point rate cut, though the Governing Council opted for a 25 basis point reduction.

In China, the Politburo, led by President Xi Jinping, pledged to implement a “moderately loose” monetary policy and “more proactive” fiscal measures in 2025, leading to a surge in bond prices and a record low of 1.77% for China’s 10-year bond yields, according to Bloomberg.

With a light economic calendar on Friday, featuring only the Import and Export Price Index, traders are likely to stay cautious and focus on the upcoming US Federal Reserve meeting next week.

Daily Digest Market Movers: Outside Help

• China’s top leaders and policymakers are considering allowing the yuan to weaken in 2025, with analysts warning of a potential “Japan scenario,” where bond yields could fall further, according to Reuters and Bloomberg.
• At 13:30 GMT, the November Import-Export Price Index will be released. The Export Index is expected to contract by 0.2% after a 0.8% increase in October, while the Import Index is also projected to shrink by 0.2%, down from a 0.3% rise in October.
• Global equities show regional divergence this Friday, with major Chinese and Japanese indices in the red, while European and US indices are in the green.
• The CME FedWatch Tool places the probability of a 25 basis point rate cut by the Federal Reserve at 96.4% for the December 18 meeting.
• The US 10-year benchmark rate trades at 4.32%, marking a fresh high for the week.

US Dollar Index Technical Analysis: Yield Movements Drive the Rally

The US Dollar Index (DXY) is poised for another rally, fueled by bond market movements this week. The ECB’s widening of the rate differential between the US and Europe, coupled with prospects of further easing in China, is pushing the US Dollar stronger. The plunge in Chinese yields is amplifying the gap between the US and China, further supporting the USD.

The 107.00 level was broken on Friday, but a daily close above it is needed for it to act as support moving forward. Just above, the 107.35 level (the October 3, 2023 high) may provide temporary resistance. Further upside targets include the November 22 high at 108.70.

On the downside, 106.52 now serves as the first key support in the event of profit-taking, followed by the pivotal 105.53 level (April 11 high) before reaching the 104 region. If the DXY drops to 104.00, the 200-day Simple Moving Average at 104.17 should act as a buffer against further declines.