- DXY trades in a consolidative fashion in the 90.70 area.
- Activity in US markets resumes following the MLK Day holiday.
- November’s TIC Flows will be the only release in the US docket.
The greenback, when tracked by the US Dollar Index (DXY), appears to have moved into a consolidative range around the 90.70 level following the closing bell in Asian markets.
US Dollar Index looks to politics, yields
The index gives away some gains after hitting fresh 2021 peaks in levels just shy of the 91.00 mark at the beginning of the week.
The recent advance in the dollar has been sustained by the moderate rebound in US yields – particularly the 10-year reference – after investors kept adjusting to the expected increase in fiscal spending under the Biden’s Administration and a probable pick-up in inflation.
However, recent Fed-speakers have practically ruled out a move on rates (hikes) or the tapering of the ongoing bond-buying programme, which is seen tempering the move in the buck in the short-term.
On the political front, all eyes will be on Washington on Wednesday, as Joe Biden will become the 46th US President.
Data wise in the US, November’s TIC Flows will be the sole release later on turnaround Tuesday.
What to look for around USD
DXY 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 vicinity of 91.00 so far this week, clinching at the same time new yearly peaks. 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 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 losing 0.07% at 90.69 and faces the next support at 89.20 (2021 low Jan.6) followed by 88.94 (monthly low March 2018) and the 88.25 (monthly low February 2018). On the other hand, a breakout of 91.01 (weekly high Dec.21) would open the door to 91.09 (55-day SMA) and finally 92.46 (23.6% Fibo of the 2020-2021 drop).