US Dollar Index comes under pressure near 90.50 ahead of data

• DXY loses further traction and drops to lows near 90.50.
• US 10-year yields look steady around the 1.65% area.
• Retail Sales, flash Consumer Sentiment next of relevance in the docket.

The upside momentum in the greenback loses further traction and drags the US Dollar Index (DXY) to new 2-day lows in the 90.50 region at the end of the week.

US Dollar Index looks to data, yields

The index gives away further gains and recedes to new 2-day lows following the rejection from the vicinity of the 91.00 hurdle on Thursday, while the mild downside in US yields also collaborates with the move.

Indeed, once market participants have digested the higher-than-expected inflation figures during April (published on Wednesday), the sentiment around the dollar looks somewhat deflated, allowing some recovery in the risk complex.

In the Fedspeak universe, FOMC’s Waller said on Thursday that he expects inflation to run above the Fed’s goal in the next couple of years and return to the 2% target in 2023. He also expects the Fed to keep the accommodative stance for “some time”. Additionally, T.Barkin from the Richmond Fed emphasized the outperformance of the US economy vs. its peers on the back of improved consumer confidence and a “booming” housing sector.

Interesting day in the US data space, where Retail Sales will take centre stage seconded by the preliminary reading of the Consumer Sentiment for the month of May. In addition, Industrial Production figures are due seconded by Manufacturing Production, Capacity Utilization and Business Inventories.

What to look for around USD

The upside momentum in the index run out of steam just below the 91.00 hurdle earlier in the week. Recent bouts of risk aversion plus higher inflation figures lent some much-needed oxygen to the dollar, although the negative stance on the currency appears to dominate the broader scenario in the longer run. This view has been exacerbated following April’s NFP, hurting at the same time the sentiment surrounding the imminent full re-opening of the US economy, which is in turn sustained by the unabated strength in domestic fundamentals, the solid vaccine rollout and once again the resurgence of the market chatter regarding an anticipated tapering. The latter comes in despite Fed’s efforts to talk down this scenario, at least for the next months.

Key events in the US this week: Retail Sales, Industrial Production, flash May Consumer Sentiment (Friday).

Eminent issues on the back boiler: Biden’s plans to support infrastructure and families worth nearly $4 trillion. 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?

US Dollar Index relevant levels

Now, the index is losing 0.17% at 90.56 and faces the next support at 89.98 (monthly low May 11) followed by 89.68 (monthly low Feb.25) and then 89.20 (2021 low Jan.6). On the other hand, a breakout of 90.90 (weekly high May 11) would open the door to 91.07 (100-day SMA) and finally 91.43 (weekly/monthly high May 5).