USD Index: At risk of a sharp drop to 104.40 on a break below key support at 105.50/105.55 – ING

Monday's recovery in US bond markets after the US ten-year Treasury yield hit 5.00% has seen the Dollar correct lower. Economists at ING analyze USD outlook.

How far will the Dollar correction run?

Higher US Treasury yields have been a dominant force driving the Dollar higher over recent months. However, unless we start to see some sharply weaker US data coming through, it is hard to see the long end coming a lot lower.

If this Dollar correction is to extend, it may well be via a sharper correction in US equities triggering a re-pricing at the short-end of the US curve – the US two-year yield breaking back below 5.00%, for instance.

105.50/105.55 looks to be key short-term support for DXY, below which there is a risk of a sharp drop to 104.40.