US Dollar Index consolidates gains above 91.00 ahead of FOMC
|- DXY extends the upside beyond the 91.00 mark.
- US yields tick higher and lend support to the dollar.
- The FOMC is largely expected to keep its accommodative stance.
The greenback, when tracked by the US Dollar Index (DXY), climbs to new 3-day highs above the 91.00 hurdle on Wednesday.
US Dollar Index bid ahead of FOMC
The index extends the weekly recovery and posts gains for the third consecutive session on Wednesday amidst the rebound in US yields.
In fact, yields of the US 10-year note manage to regain the vicinity of the 1.65% level, broadening the bounce off recent lows in the 1.53% zone.
In the meantime, the FOMC event will be the salient point this week. Market consensus, however, expects the gathering to pass by unnoticed, as the Committee is largely seen keeping the monetary conditions unchanged. This view is widely backed by latest comments from Chairman Powell and other FOMC members, who reiterated that the Fed is in no rush to modify its current status quo, let alone kick start the tapering talk.
In the US data space, weekly MBA Mortgage Applications are due seconded by advanced Goods Trade Balance figures, the flash Wholesale Inventories for the month of March and the weekly report on crude oil supplies by the EIA.
What to look for around USD
The April pullback in the dollar seems to have met some contention in the 90.70 region for the time being, always on the back of the broad-based retracement in US yields and the loss of enthusiasm on the US reflation/vaccine trade. Also weighing on the buck emerges the mega-accommodative stance from the Fed (until “substantial further progress” in inflation and employment is made), and rising optimism on a strong global economic recovery, all morphing into a solid source of support for the risk complex and a most likely driver of probable weakness in the dollar in the next months.
Key events in the US this week: FOMC meeting (Wednesday) – Flash Q1 GDP, Initial Claims (Thursday) – Core PCE, Personal Income/Spending, final April U-Mich Index.
Eminent issues on the back boiler: Biden’s new infrastructure bill worth around $3 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 gaining 0.19% at 91.06 and a break above 91.67 (50-day SMA) would open the door to 92.02 (200-day SMA) and finally 93.43 (2021 high Mar.31). On the flip side, the next support emerges at 90.68 (monthly low Apr.26) ahead of 89.68 (monthly low Feb.25) and then 89.20 (2021 low Jan.6).
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