The weak existing home sales data released on Tuesday caused a slight drag on the strength of the dollar index, but obviously not enough to stop the upward momentum. Technically, a break above 103.50 would open up further upside for the dollar index.

The drag on the dollar index from the existing home sales data was modest and short-lived

U.S. data released on Tuesday showed that the annual pace of home sales in July was 4.07 million, missing expectations of 4.15 million and the previous value of 4.16 million. After the data, the dollar index fell slightly from its session high, but soon regained its losses and continued its upward trend from its session low.

It was the fifth straight month of declines, a sign that rising mortgage rates are weighing on the housing market. According to market data, the 30-year mortgage rate in the United States recently exceeded 7%, the highest level in 21 years.

A less closely watched reading released at the same time, the Richmond Fed manufacturing index for August, came in at -7, in line with expectations and up from -9. A reading below zero indicates a deterioration in manufacturing conditions, and this is the seventh consecutive month that the index has been below zero. However, the weakness in U.S. manufacturing may be well known to the market, so it is not any guide to the direction of the dollar.

About 20 minutes after the release of the weaker existing home sales and Richmond Fed manufacturing index, the dollar index hit its highest level since June 12, mainly because the recent move in the dollar may be driven by the strengthening of Treasury yields - the 10-year US Treasury yield hit 4.36%, its highest level since November 2007.

However, the question here is how long the rise in US bond yields can continue to drive the US dollar, the current market logic is that high yields increase the attractiveness of the US dollar, but there is bound to be such a critical point in the future - when the yield of Treasury bonds is high to a certain extent, the market will be aware of the US debt problem, then high yields may become the weakness of the US dollar.

It is also interesting to note that recent Fed rate hike expectations have not been significantly enhanced by better economic data and hawkish rhetoric. According to CME's Fed Watch tool, the odds of a September rate hike are still just 15 percent, up slightly from 10 percent a week ago but essentially unchanged from a month ago.

Technical analysis of the trend of the US dollar index: or break through the resistance of 103.50

The daily chart shows that the US dollar index has tried repeatedly to break through the 103.50 resistance since last week, but the possibility of a successful upward breakthrough will only become more and more likely if the recent upward trend is kept intact. If 103.50 is effectively broken today, further gains will look to 104 and 104.50.

If the next pullback, continue to pay attention to the 102.80-103 area support, stable will continue to remain bullish, the next break implies further pullback risk.