- Reduction in safe-haven flows weighs on the DXY.
- Dovish ECB stance today can lend support to the index.
- Fed’s monetary policy tightening can also lend support.
The DXY US Dollar Index price regained some of its recent gains overnight as delta nerves weakened amid strong US corporate earnings. This led to a reduction in safe-haven flows, which boosted the yield on US bonds slightly and caused some outflow of US Dollars. The dollar index fell 0.20% to 92.77, where it remains in Asia amid weak regional trading.
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The US Dollar continues to hold most of its recent multi-week gains in the broader picture, and the dovish ECB could lift the Dollar Index again later today. That being said, given that delta complacency rises as the week progresses, the US Dollar could just as easily drop on Friday without any real data to turn things around this week. Thus, a break of 92.50 on the Dollar Index is likely to signal more weakness in the US Dollar at the end of the week and early next week.
The 10-year US bond yield briefly tested the 1.30% range on Wednesday after falling below 1.13% earlier in the week.
Investors, for their part, seem to prefer the combination of risks at the expense of a safe-haven galaxy, despite the continued spread of the Delta variant of the coronavirus around the world, which could make cold water for global growth prospects.
The DXY is under some selling pressure after peaking above 93.00 in the past three months. The index’s recent positive change was largely supported by a recurrence of risk aversion in response to a recurrence of coronavirus concerns. At the same time, the Dollar’s constructive stance continues to be supported by a strong economic recovery, unexpectedly high inflation and growing rumors of interest rate hikes/QE cuts earlier than expected.
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DXY price technical outlook: Bulls battling but failed
The 4-hour chart of the Dollar Index reveals that the price has come under strong bearish pressure. The index stalled its downside near around the 5-period SMA. However, the chances of a bounce-back are very thin. Meanwhile, the next support of 10-SMA is not too far (92.50).
On the flip side, 93.00 serves as a strong resistance. Therefore, any pullback below the level will be considered a dead cat bounce only.
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