Dollar Index is trading up 0.59% at 104.64

The U.S. dollar soared in early European trade Monday, especially against the Japanese yen, as red-hot U.S. inflation data lifted Treasury yields at the start of a busy week for central banks.

At 2:50 AM ET (0650 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.4% higher at 104.430, climbing to the highest level in four weeks.

The dollar’s strength was shown most vividly against the Japanese yen, with USD/JPY up 0.3% to 134.79, having earlier climbed to 135.16, its highest since October 1998.

This follows Friday’s U.S. consumer price index for May rising to a new four-decade high of 8.6% on the year. This has raised the chances that the Federal Reserve will need to extend its series of 50bp rate hikes well into the third quarter and even potentially opening the door to a larger 75bp move at Wednesday’s policy-setting meeting.

The benchmark U.S. 10-year yield touched 3.2% early on Monday, having gained nearly 12 basis points on Friday, while the Bank of Japan confirmed earlier Monday it would buy Japanese government bonds on Tuesday as part of its policy to keep benchmark 10-year yields close to its 0% target.

The BoJ meets on Friday and its move to buy JGBs on Tuesday suggest that it is very likely to stick to its ultra-easy monetary policy stance.

On technical fronts Dollar Index RSI stood at 79.58 and currently it is trading above all MA. So, BUY position can be taken with following target and stoploss:

TRADE SIGNAL – : Dollar Index – BUY: 104.61, TARGET: 104.90, STOP LOSS : 104.39