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  • DXY fades the recent advance and challenges 90.00.
  • US 10-year yields remain in sub-1.60% levels so far.
  • Advanced Q1 GDP, Durable Goods Orders, Initial Claims next on tap.

The greenback struggles for direction and motivates the US Dollar Index (DXY) to challenge the key 90.00 neighbourhood in the second half of the week.

US Dollar Index focused on data

The index fades part of Wednesday’s moderate advance and re-tests the 90.00 neighbourhood on the back of the resumption of the buying bias in the risk complex on Thursday.

In fact, investors’ focus re-shift to the riskier assets amidst month-end adjustments in the dollar and the consolidative stance in US yields. Indeed, yields of the US 10-year note remain locked within a died-lined theme in the sub-1.60% area for the time being.

Furthermore, the fragile outlook remains well and sound around the dollar following further confirmation of the Fed’s mega-dovish stance and “transient” bouts of higher inflation.

It will be an interesting session in the US docket, with another revision of Q1 GDP figures, usual weekly Initial Claims, Durable Goods Orders and Pending Home Sale, both for the month of April.

At his testimony on Wednesday, FOMC’s R.Quarles noted that medium term inflation risks are “weighted to the upside” on the back of the ongoing fiscal stance. At the same time, he did not rule out start the debate around tapering in the next meetings.

What to look for around USD

The index remains under pressure despite regaining the 90.00 neighbourhood in past hours. Looking at the broader scenario, the negative stance on the dollar seems to prevail among market participants, as speculation of higher inflation in the medium-term now looks to have lost momentum and the US economic outperformance narrative seems almost fully priced in. Bolstering the bearish view on the buck emerges further confirmation of the Fed’s mega-accommodative stance for the foreseeable future, as per recent FOMC Minutes and Fed-speakers.

Key events in the US this week: Flash Q1 GDP, Initial Claims, Durable Goods Orders (Thursday) – Core PCE, Personal Income/Spending, final U-Mich Index (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 losing 0.07% at 89.98 and faces the next support at 89.53 (monthly low May 25) followed by 89.20 (2021 low Jan.6) and then 88.94 (monthly low March 2018). On the other hand, a breakout of 90.90 (weekly high May 11) would open the door to 91.08 (100-day SMA) and finally 91.43 (monthly high May 5).