US Dollar Index flirts with tops near 90.60, Powell in sight

• DXY gains extra upside and tests the 90.60 area.
• Initial Claims rose by 965K WoW during last week.
• Fed’s Powell takes centre stage later in the NA session.

The US Dollar Index (DXY) moves to fresh 2-day peaks in the area of 90.60 on Thursday.

US Dollar Index stays bid ahead of Powell

The index keeps the upbeat tone and adds to Wednesday’s gains, always trading well above the key barrier at the 90.00 mark.

The offered bias in the euro appears to lend support to the buck for yet another session, mainly after the ECB voiced its concerns over the level of the exchange rate in a context of low inflation and downside risks when comes to the economic outlook (as per the recently published ECB Accounts and earlier ECB-speak).

Also lending support to DXY appears the weekly increase in Initial Claims to levels last seen in August near the 1M threshold, as the impact of the coronavirus pandemic seems to be back on the labour market.

Later in the session Fed’s Powell will participate in a livestream event. Additionally, Atlanta Fed R.Bostic (voter, centrist) and Dallas Fed R.Kaplan (2023 voter, hawkish) are due to speak later in the session.

Of note as well will be the speech by President-elect Joe Biden, as he is expected to shed further details on a new stimulus package.

What to look for around USD

The index regained buying interest after bottoming out in the 89.20 area in the first trading week of the new year and managed to advance to the proximity of 90.70 earlier this week, where some relevant resistance turned up. The recovery in US yields keeps lending support to the greenback as investors continue to perceive a potential pick-up in inflation pressure/expectations in response to the most likely increment in fiscal stimulus under a Democrat White House. However, the outlook for the greenback remains fragile in the short/medium-term for the time being amidst massive monetary/fiscal stimulus in the US economy, the “lower for longer” stance from the Federal Reserve and prospects of a strong recovery in the global economy.

US Dollar Index relevant levels

At the moment, the index is gaining 0.18% at 90.52 and a breakout of 90.72 (2021 high Jan.11) would open the door to 91.01 (weekly high Dec.21) and finally 91.23 (weekly high Dec.7). On the downside, immediate contention is located at 89.20 (2021 low Jan.6) followed by 88.94 (monthly low March 2018) and the 88.25 (monthly low February 2018).