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  • DXY extends the weekly decline to the 90.30 area.
  • US-China trade conflict returns to the headlines.
  • Weekly Claims and the Fed’s Monetary Policy Report next on tap.

The US Dollar Index (DXY), which gauges the greenback vs. its main competitors, remains well on the defensive near the 90.30 region.

US Dollar Index looks to risk trends, data

The index sheds ground for the fifth consecutive session on Wednesday, extending at the same time the rejection from 2021 tops around 91.60 (February 5). Furthermore, DXY keeps hovering around the 2020-2021 line, which is holding quite well the downside for the time being.

The better tone in the risk complex has been sustained further by the pick-up in the reflation trade in past weeks, all putting the buck under extra selling pressure along with declining yields in the US bond markets.

Disappointing US inflation figures during January published on Wednesday have been also adding to the renewed weakness surrounding the dollar.

The US-China trade front has re-emerged after a phone call between President Biden and his Chinese peer Xi Jinping left the door open to the resumption of talks in the future.

Data wise in the US, the usual weekly Claims will take centre stage later in the NA session followed by the semi-annual Federal Reserve’s 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: Weekly Initial Claims (Thursday) 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. Could US fiscal stimulus lead to overheating?

US Dollar Index relevant levels

At the moment, the index is retreating 0.08% at 90.35 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).