Dollar Index nurses post-retail sales losses

The Dollar Index [DXY] is trading weak in Asia below 92.00 handle as Asian desks react to an unexpected drop in US retail sales in August.

Currently, DXY is trading at 91.82 levels. The US 10-year treasury yield is hovering at 2.202% and the 30-yr and the 5-yr hover at 2.769% and 1.806%, respectively.

The treasury yield curve narrowed to the levels last seen on July 7. However, it is not necessarily bad for the USD, given the flattening of the curve was largely due to traders pricing-out the extreme dovishness at the front end [short duration yields] of the curve.

Nevertheless, the weak retail sales number and caution ahead of the Fed decision is keeping the greenback in the red.

Focus on Fed

The Fed is expected to start reducing its balance sheet. There is, however, zero expectation for an interest rate hike. Last week,  Goldman Sachs boosted the odds for a third rate hike this year to 60 percent from 55 percent. Markets too are expecting the Fed to maintain its gradual pace of tightening by raising rates in December.

As for today, the USD is likely to take cues from the bond markets.

Dollar Index Technical Levels

A break above 92.00 [psychological  hurdle] would open up upside towards 92.38 [falling trend line hurdle] and 92.66 [Sep 14 high]. On the downside, breach of support at 91.58 [previous day's low] could yield a sell-off to 91.41 [Sep 7 low] and 91.01 [Sep 8 low].