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  • DXY stays well bid and navigates the 90.50/60 band.
  • Moderate risk-off mood bolsters the demand for the dollar.
  • Retail Sales contracted at a monthly 0.7% in December.

The greenback, in terms of the US Dollar Index (DXY), extends the upside further and trades at shouting distance from Monday’s tops beyond 90.70 on Friday.

US Dollar Index propped up by risk aversion

The index manages to leave behind Thursday’s “doji-like” session and grab further upside traction to the vicinity of the so far yearly peaks near 90.70 (January 11).

The upbeat tone in the buck is reinforced by the re-emergence of the risk aversion and comes despite US yields have deflated somewhat since recent tops and President-elect Biden unveiled intentions of pumping around $1.9 trillion to help the economic recovery and fight the pandemic under the form of another stimulus bill.

Plenty of data in the US calendar, with headline Retail Sales contracting more than expected at a monthly 0.7% in December and Core Sales also dropping 1.4% from a month earlier. Additional data also saw the NY Empire State index disappointing expectations at 3.50 for the month of January and Producer Prices rising less than forecast 0.3% MoM in December.

On the bright side of the docket, December’s Capacity Utilization ticked higher to 74.5%, Industrial Production expanded 1.6% MoM and Manufacturing Production gained 0.9%.

What to look for around USD

The index 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 proximity of 90.70 earlier this week, where some relevant resistance turned up. 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 for the time being 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 gaining 0.34% at 90.55 and a breakout of 90.72 (2021 high Jan.11) would open the door to 91.01 (weekly high Dec.21) and finally 91.23 (weekly high Dec.7). On the other hand, immediate contention emerges at 89.20 (2021 low Jan.6) followed by 88.94 (monthly low March 2018) and the 88.25 (monthly low February 2018).