US Dollar Index in fresh lows near 90.30 ahead of US CPI, Powell
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US Dollar Index in fresh lows near 90.30 ahead of US CPI, Powell

  • DXY remains depressed and drops to lows near 90.30.
  • Persistent improvement in risk appetite weighs on the dollar.
  • Markets’ focus is expected to be on January’s US CPI.

The greenback, in terms of the US Dollar Index (DXY), remains on the back footing so far this week and now tests fresh lows near 90.30.

US Dollar Index offered ahead of CPI data

The index loses ground for the fourth consecutive session on Wednesday and navigates multi-day lows in the 90.35/30 band, always against the backdrop of the continuous improvement in the sentiment surrounding the risk complex.

In fact, the reflation trade has returned to the fore and was exacerbated after January’s Nonfarm Payrolls disappointed expectations last Friday. The greenback has also lost support from the US bond market, where yields of the 10-year benchmark sparked a correction lower after hitting tops near 1.20% earlier in the session.

In the US docket, all the attention will be on the inflation figures tracked by the CPI/Core CPI for the month of January and the speech by Fed’s Powell. In addition, monthly Wholesale Inventories (December) are due along with the weekly report on US crude oil supplies by the EIA.

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: Inflation figures tracked by the CPI/Core CPI, Chief Powell’s speech on “The State of the US Labor Market” (Wednesday) and 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.

US Dollar Index relevant levels

At the moment, the index is retreating 0.07% at 90.37 and faces initial support at 90.32 (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 91.74 (100-day SMA) and finally 92.46 (23.6% Fibo of the 2020-2021 drop).

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