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  • DXY remains depressed in the sub-90.00 levels.
  • US 10-year yields climb to the 1.65% region on Wednesday.
  • FOMC Minutes will take centre stage later in the NA session.

The greenback navigates the lower bound of the recent range and keeps the US Dollar Index (DXY) close to monthly lows in the 8970/65 band.

US Dollar Index looks to FOMC, inflation, risk trends

The index now struggles for direction after bottoming out in the 89.70 zone earlier in the session.

In fact, the dollar remains well under pressure despite the rebound in yields of the US 10-year reference to the 1.65% region and the re-emergence of the high inflation narrative in the next months.

In the meantime, investors continue to favour the positioning in the risk-associated universe, which has been exacerbated as of late in response to the confirmation by several Fed officials of the transitory nature of high inflation and the mega-accommodative dovish stance from the Federal Reserve.

Later in the US data space, weekly MBA Mortgage Applications are due ahead of the EIA’s report on US crude oil inventories. However, the publication of the FOMC Minutes will be the salient event later on Wednesday, with the centre of the debate gyrating around the prospects of higher inflation and the potential timing of the tapering of the bond purchase programme.

What to look for around USD

The index has fully faded the rally seen during March and returns to levels below the psychological 90.00 neighbourhood despite the reluctance of US yields to grind lower. Looking at the broader scenario, the negative stance on the currency seems to prevail among market participants. This view has been exacerbated following April’s Payrolls, hurting at the same time the sentiment surrounding the imminent full re-opening of the US economy, which is in turn sustained by the unabated strength in domestic fundamentals, the solid vaccine rollout and once again the resurgence of the market chatter regarding an anticipated tapering. The latter comes in despite Fed’s efforts to talk down this scenario, at least for the next months.

Key events in the US this week: FOMC Minutes (Wednesday) – Initial Claims, Philly Fed Index (Thursday) – Flash Manufacturing PMI, Existing Home Sales (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 up 0.03% at 89.80 and faces the next support at 89.68 (monthly low May 19) 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 91.06 (100-day SMA) and finally 91.43 (weekly/monthly high May 5).

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