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  • No change in the offered tone surrounding the dollar.
  • The NFIB index receded a tad to 95.0 in January.
  • Fed’s Kaplan does not rule out a spike in inflation.

The greenback, when tracked by the US Dollar Index (DXY), remains well on the defensive in the 90.60/50 band on turnaround Tuesday.

US Dollar Index offered on risk-on trade

DXY sheds ground for the third session in a row on Tuesday after being rejected from YTD highs in the 91.60 area at the end of last week.

Investors’ preference for riskier assets has picked up pace as of late in response to the reflation trade and bolstered further by hopes of a firm economic recovery. The vaccine rollout, in the meantime, is expected to pick up pace in Europe and adds to the solid growth prospects.

Earlier in the session, Atlanta Fed R.Kaplan said that a temporary pick-up in inflation would not be surprising, while he sees a strong boost to GDP this year and expects the economy to expand above the trend in 2022. Kaplan also favoured dropping some of the current extraordinary measures once the pandemic is behind us. He also believes that there are no systemic risks.

In the US data space, the NFIB Index came in at 95.0 for the month of January (from December’s 95.9). The calendar goes on with the JOLTs Job Openings, the speech by St. Louis Fed J.Bullard (2022 voter, dovish) and the usual weekly report on US crude oil supplies by the API.

What to look for around USD

The dollar’s corrective upside run out of steam in the 91.60 on Friday. Bouts of occasional strength in US yields remain the almost exclusive driver of bullish attempts in the buck helped with firm growth prospects vs. its G10 peers and auspicious (and fast) vaccine rollout. The continuation of the uptrend in the dollar, however, is forecast to be unsustainable amidst the fragile outlook for the currency in the medium/longer-term, and always against the backdrop of the current massive monetary/fiscal stimulus in the US economy, the “lower for longer” stance from the Fed and prospects of a strong recovery in the global economy, which is expected to morph into extra appetite for riskier assets.

Key events this week in the US: Inflation figures tracked by the CPI/Core CPI, Chief Powell’s speech on “The State of the US Labor Market” (Wednesday) and the preliminary gauge of the Consumer Sentiment for the month of February (Friday).

Eminent issues on the back boiler: US-China trade conflict under the Biden’s administration. Trump’s impeachment. Tapering speculation vs. economic recovery. US real interest rates vs. Europe.

US Dollar Index relevant levels

At the moment, the index is retreating 0.36% at 90.60 and faces initial support at 90.50 (weekly low Feb.9) followed by 90.04 (weekly low Jan.21) and then 89.20 (2021 low Jan.6). On the upside, a breakout of 91.60 (2021 high Feb.5) would open the door to 91.78 (100-day SMA) and finally 92.46 (23.6% Fibo of the 2020-2021 drop).