US Dollar Index loses momentum near 92.00
- DXY fades the earlier move to the proximity of 92.00.
- US yields correct lower and put the dollar under pressure.
- Investors’ attention remains on yields, economic recovery.
The greenback, when tracked by the US Dollar Index (DXY), returns to the negative territory after failing to test the key barrier at 92.00 earlier in the session.
US Dollar Index offered on declining yields
The index extends the choppy activity seen so far this week and leaves behind Thursday’s advance, all after faltering once again to surpass the key 92.00 neighbourhood during early trade.
The ongoing knee-jerk in the buck comes in response to the retracement in US yields, particularly the 10-year note, to the 1.67% level after climbing as high as the 1.75% at some point on Thursday.
In the meantime, DXY almost fully recovered the post-FOMC drop to the 91.30 region after the Committee reiterated the ultra-accommodative stance of the Fed and Chairman Powell talked down any tapering of the bond purchase programme for the foreseeable future.
Absent releases in the US calendar, investors are likely to closely watch the developments in the US bond markets for price direction along with the US economic recovery narrative coupled with the solid pace of the vaccine campaign.
What to look for around USD
The change of heart in the buck seen in past weeks remains underpinned by the expected better performance of the US economy vs. its G10 peers. The fresh stimulus aid is also seen adding to the latter pari passu with the investors’ perception of higher inflation in the months to come and its translation into rising US yields. However, a sustainable move higher in DXY should be taken with a pinch of salt amidst the mega-accommodative stance from the Fed (until “substantial further progress” in inflation and employment is made) and hopes of a strong global economic recovery.
Eminent issues on the back boiler: US-China trade conflict under the Biden’s administration. Tapering speculation vs. economic recovery. US real interest rates vs. Europe. Could US fiscal stimulus lead to overheating? Future of the Republican party post-Trump acquittal.
US Dollar Index relevant levels
At the moment, the index is retreating 0.19% at 91.70 and faces the next support at 91.30 (weekly low Mar.18) seconded by 91.05 (high Feb.17) and then 90.86 (50-day SMA). On the upside, a breakout of 92.50 (2021 high Mar.9) would expose 92.68 (200-day SMA) and finally 94.30 (monthly high Nov.4).