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  • DXY keeps the modest gains around the 90.00 level.
  • US 10-yeaer yields lose momentum and drop near the 1.62% level.
  • FOMC Minutes next on tap in the US docket.

The US Dollar Index (DXY), which gauges the greenback vs. a bundle of its main rivals, sticks to the positive territory in the vicinity of the 90.00 neighbourhood on Wednesday.

US Dollar Index looks bid ahead of Minutes

The important sell-off in the index appears to have met some decent contention in the 89.70 region so far, area coincident with February’s low.

The resurgence of the risk-off sentiment coupled with inflation jitters and higher US yields reignited the buying interest in the dollar ahead of the release of the FOMC Minutes, scheduled for later in the NA session.

The centre of the debate is expected to gyrate around the Committee’s views on the prospects (and sustainability) of higher inflation in the next months associated with the likeliness that the taper talk could kick in sooner than anticipated.

Earlier in the US docket, MBA Mortgage Applications rose 1.2% in the week ended on May 14. Next on tap will be the EIA’s weekly report on crude oil stockpiles.

What to look for around USD

The index has fully faded the rally seen during March and returns to levels below the psychological 90.00 neighbourhood despite the reluctance of US yields to grind lower. Looking at the broader scenario, the negative stance on the currency seems to prevail among market participants. This view has been exacerbated following April’s Payrolls, hurting at the same time the sentiment surrounding the imminent full re-opening of the US economy, which is in turn sustained by the unabated strength in domestic fundamentals, the solid vaccine rollout and once again the resurgence of the market chatter regarding an anticipated tapering. The latter comes in despite Fed’s efforts to talk down this scenario, at least for the next months.

Key events in the US this week: FOMC Minutes (Wednesday) – Initial Claims, Philly Fed Index (Thursday) – Flash Manufacturing PMI, Existing Home Sales (Friday).

Eminent issues on the back boiler: Biden’s plans to support infrastructure and families, worth nearly $4 trillion. 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?

US Dollar Index relevant levels

Now, the index is up 0.12% at 89.89 and a breakout of 90.90 (weekly high May 11) would open the door to 91.06 (100-day SMA) and finally 91.43 (weekly/monthly high May 5). On the flip side, the next support lines up at 89.68 (monthly low May 19) followed by 89.20 (2021 low Jan.6) and then 88.94 (monthly low March 2018).

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