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  • DXY erodes earlier gains and returns to the red territory.
  • The ECB increased its stimulus programme and lent support to EUR.
  • Initial Claims rose by nearly 1.9 million during last week.

The greenback has reversed its initial optimism and it has now returned to the negative ground near the 97.20 region when gauged by the US Dollar Index (DXY).

US Dollar Index offered post-ECB, data

The earlier bullish attempt to the 97.60/65 band lacked follow through and ended up morphing into the resumption of the bearish trend in the index, opening the door at the same time for a deeper retracement.

In the meantime, the appetite for riskier assets seems to prevail among market participants despite Thursday’s pause. The upbeat mood in the riskier assets was boosted further today by the ECB decision to expand its purchase programme by €600 billion. This programme (PEPP) is expected to run until June 2021.

In the US data space, Initial Claims showed nearly 1.9 million Americans filed for unemployment benefits during last week (vs. 1.8 million forecasted). Despite the figures, the trend has been grinding lower since the record highs observed in early March.

Additional data saw the trade deficit widening to $49.4 billion during April and the Nonfarm Productivity at 5.1% QoQ in the January-March period. Earlier, Challenger Job Cuts dropped to 397,016K in May (from 671,129K).

What to look for around USD

The greenback remains under heavy pressure at the beginning of the month, prolonging the downtrend well below the 98.00 mark and always against the backdrop of the solid risk-on sentiment in the global markets. In the meantime, the dollar remains vigilant on the US-China trade front, the gradual return to some sort of normality in the US economy and the broader risk appetite trends as main drivers of the price action. On the constructive stance around the buck, bouts of risk aversion should support the investors’ preference for the greenback as a safe haven along with its status of global reserve currency and store of value.

US Dollar Index relevant levels

At the moment, the index is losing 0.14% at 97.17 and faces immediate contention at 97.10 (monthly low Jun.4) followed by 97.09 (low Jan.16) and finally 96.33 (monthly low Dec.31 2019). On the upside, a breakout of 98.49 (200-day SMA) would aim for 99.04 (100-day SMA) and finally 99.98 (high May 25).