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  • DXY extends the upside and advances to 91.30.
  • US 10-year yields looks side-lined above the 1.40% mark.
  • IBD/TIPP Index, Fedspeak come next in the US docket.

The greenback adds to recent gains above the 91.00 mark and record fresh multi-week highs when tracked by the US Dollar Index (DXY).

US Dollar Index stronger on yields, data

The index clinches its third consecutive session with gains so far and extends the recent breakout of the key barrier at the 91.00 yardstick on turnaround Tuesday.

In fact, the dollar remains well bid in a context of expected higher inflation in the next months – despite recent Fed speakers talked down such scenario –  which at the same time morph into extra legs for the index.

Supporting the above, recent results from US fundamentals continue to signal a strong performance of the US economy vs. its G10 peers for the next months, all supported at the same time by the solid pace of the vaccine rollout.

In the US data space, the IBD/TIPP index will be the sole release later in the NA session along with speeches by FOMC’s L.Brainard (permanent voter, dovish) and San Francisco Fed M.Daly (voter, centrist).

What to look for around USD

The index manages to regain the upper hand and finally surpass the 91.00 yardstick. The reversion of the recent weakness in the dollar came in tandem with the strong bounce of yields to levels last recorded a year ago. While the reflation/vaccine trade continues to keep bullish attempts in the buck contained, bouts of concerns regarding a pick-up in inflation (and inflation expectations) stemming from the expected extra fiscal stimulus plus the expected outperformance of the US economy against economies overseas could provide some pockets of strength in the dollar for the time being. Against this, occasional upside in the buck should remain short-lived amidst the broad-based bearish outlook for the currency in the medium/longer-term. This, in turn, is propped up by the reinforced mega-accommodative stance from the Fed until “substantial further progress” is seen, persistent chatter of extra fiscal stimulus and prospects of a strong recovery in the global economy, which are all seen underpinning the better sentiment in the risk complex.

Key events in the US this week: ADP Report, ISM Non-Manufacturing, Fed’s Beige Book (Wednesday) – Initial Claims, Powell’s speech (Thursday) – Nonfarm Payrolls (Friday).

Eminent issues on the back boiler: 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? Future of the Republican party post-Trump acquittal.

US Dollar Index relevant levels

At the moment, the index is gaining 0.21% at 91.22 and a breakout of 91.33 (weekly high Mar.2) would open the door to 91.60 (2021 high Feb.5) and finally 92.46 (23.6% Fibo of the 2020-2021 drop). On the other hand, the next support emerges at 89.68 (weekly low Feb.25) seconded by 89.20 (2021 low Jan.6) and then 88.94 (monthly low March 2018).

 

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