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  • DXY manages to grab some attention in the 90.30/25 band.
  • Weekly Claims came in at 793K, missing previous estimates.
  • The Fed will publish its Monetary Policy Report later in the session.

The greenback stays on the defensive although it seems to have met decent support in the proximity of 90.20 when measured by the US Dollar Index (DXY).

US Dollar Index now looks to Fed

There are no changes in the negative sentiment around the buck, which morphs into the fifth consecutive daily pullback of the index so far.

As usual in past sessions, the improved mood in the risk appetite trends lent fresh oxygen to the riskier assets in detriments of the greenback, always propped up by the reflation trade and rising probability of extra fiscal stimulus in the US.

The drop in yields of the US 10-year reference also plays its part in the dollar’s weekly leg lower, although the 1.12% region seems to be quite a decent support so far this week.

in addition, Chief Powell stressed on Wednesday the ultra-accommodative stance of the Federal Reserve, ruling out any tapering attempt until the economy leaves the pandemic behind.

In the US calendar, Initial Claims rose by 793K WoW, missing consensus and extending the 4-Week Average to 823.00K. Later in the NA, the Fed will release its Monetary Policy Report.

What to look for around USD

The dollar’s corrective upside run out of steam in the 91.60 on Friday, triggering a strong leg lower afterwards. Bouts of occasional strength in US yields remain the almost exclusive driver of bullish attempts in the buck helped with firm growth prospects and auspicious (and fast) vaccine rollout vs. its G10 peers. The continuation of the downtrend in the dollar looks the most likely scenario against the backdrop of the fragile outlook for the currency in the medium/longer-term, and always amidst the current massive monetary/fiscal stimulus in the US economy, the “lower for longer” stance from the Fed and prospects of a strong recovery in the global economy, which is expected to morph into extra appetite for riskier assets.

Key events this week in the US: The preliminary gauge of the Consumer Sentiment for the month of February (Friday).

Eminent issues on the back boiler: US-China trade conflict under the Biden’s administration. Trump’s impeachment. Tapering speculation vs. economic recovery. US real interest rates vs. Europe. Could US fiscal stimulus lead to overheating?

US Dollar Index relevant levels

At the moment, the index is retreating 0.13% at 90.31 and faces initial support at 90.25 (weekly low Feb.10) followed by 90.04 (weekly low Jan.21) and then 89.20 (2021 low Jan.6). On the upside, a breakout of 91.60 (2021 high Feb.5) would open the door to 91.70 (100-day SMA) and finally 92.46 (23.6% Fibo of the 2020-2021 drop).