- DXY gives away some gains and drops below 91.00.
- US 10-year yield look stabilized around 1.28%.
- Weekly Claims, housing data, Fedspeak next of note.
The upside momentum in the greenback now deflates somewhat and prompts the US Dollar Index (DXY) to return to levels below the 91.00 barrier.
US Dollar Index looks to yields, data
Following the recent advance to weekly tops above 91.00 the figure, the index now sheds some ground and returns to the 90.80 area following the opening bell in the Old Continent on Thursday.
As usual, the recent moderate rebound in the dollar came in tandem with the strong rebound in US yields, with the US 10-year benchmark testing the 1.33% area on Wednesday. The upbeat note in the US bonds market follows investors’ perception of higher inflation in the medium-to-longer term in response to heightened fiscal spending and the outperformance of the US economy vs. its G10 peers.
Following the release of the FOMC Minutes on Wednesday, the Committee reinforced the dovish stance from the Federal Reserve, while members in general noted that potential bouts of higher inflation are seen as temporary and defended at the same time the Fed’s pledge to achieve maximum employment.
In the US data space, usual weekly Claims with take centre stage later in the first turn seconded by the Philly Fed Index, Building Permits and Housing Starts and the EIA’s weekly report on US crude oil inventories.
In addition, FOMC’s L.Brainard (permanent voter, dovish) and Atlanta Fed R.Bostic (voter, centrist) are due to speak later in the session.
What to look for around USD
The corrective upside in the index appears to have met a decent hurdle near the 91.00 yardstick recently, always following the renewed correlation to US yields. However, bullish attempts in the buck should remain short-lived amidst the broad-based fragile outlook for the currency in the medium/longer-term. The latter is sustained by the (reinforced) accommodative stance from the Fed, extra fiscal stimulus and prospects of a strong recovery in the global economy, which are seen underpinning the better sentiment in the risk-associated space.
Key events in the US this week: Weekly Initial Claims and the Philly Fed Index are due on Thursday ahead of flash PMIs (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 losing 0.21% at 90.75 and faces immediate contention at 90.22 (weekly low Feb.16) followed by 90.04 (weekly low Jan.21) and then 89.20 (2021 low Jan.6). On the flip side, a breakout of 91.05 (weekly high Feb.17) would open the door to 91.53 (100-day SMA) and finally 91.60 (2021 high Feb.5).
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