The US dollar index (DXY) rose sharply during the U.S. session on Friday (September 19), extending its gains for the third consecutive trading day after rebounding from a multi-year low of 96.218 earlier this week. This rebound occurred after the Federal Reserve cut interest rates, and traders are closely watching technical levels and U.S. Treasury yields to determine the subsequent trend.



Technical rebound encounters resistance ahead

The US Dollar Index surged from a low of 96.218 to 97.809, approaching its 50-day moving average at 98.081 and the 50% retracement level at 98.238. The 98.081–98.238 range is seen as potential resistance, where bears could reassert control. A confirmed breakout of this range would be technically significant and potentially shift market sentiment, but traders remain cautious in the absence of a resistance breakout.

Treasury yields climb despite Fed easing

Contrary to conventional expectations, long-term U.S. Treasury yields rose instead of falling after the Federal Reserve announced a 25 basis point rate cut. The 10-year Treasury yield rose over 3 basis points to 4.135%, briefly touching 4.145%, its highest level since September 5. The 2-year Treasury yield edged up to 3.574%, while the 30-year bond yield rose to 4.757%. The divergence between rising long-term yields and the accommodative policy stance reflects investor concerns about inflation, economic growth, and the expansion of U.S. Treasury issuance.

Wells Fargo warns of growth and inflation risks

Scott Lane, senior global market strategist at Wells Fargo, said the continued rise in 10-year Treasury yields "is consistent with upward revisions to GDP forecasts and a slight increase in inflation." This backdrop suggests that investors anticipate stronger economic resilience than the Federal Reserve's easing policy, justified by "risk management," suggests. While the Fed has hinted at two more rate cuts before the end of the year, the bond market appears more focused on ongoing price pressures and fiscal developments.

Labor market signals provide short-term support

Weekly unemployment claims data showed a decrease in the number of Americans applying for unemployment benefits, alleviating immediate concerns about a weakening labor market following last week's surge. While the labor market remains weak compared to earlier this year, the latest data supported the dollar's strength and provided support for a reversal bottom in the dollar index. Next week's August Personal Consumption Expenditures (PCE) data will be key in assessing inflation trends and the credibility of the Federal Reserve's policies.

Market Outlook: Dollar bulls eye test of resistance levels



(Source of US Dollar Index daily chart: Yihuitong)

The US Dollar Index's rebound continues, with short-term focus on the 98.081–98.238 resistance range. Any resistance within this range could trigger renewed selling pressure; a decisive breakout would reinforce bullish sentiment. Despite the Federal Reserve's easing policy, Treasury yields continue to climb. Traders should be prepared for volatility as technical and macro signals intersect.

At 01:44 Beijing time, the US dollar index was at 97.6100/250, up 0.26%.