Dollar: Maintaining superiority

Yesterday, the dollar reacted positively to the publication of the second estimate of US GDP for the 1st quarter, which turned out to be better than the first and expectations. Data from the US labor market additionally supported the dollar, which strengthened immediately after publication. Nevertheless, the main reason for its growth now is the dumping of US government bonds by investors. And until a decision on the government debt limit is made, we will most likely see a further increase in the dollar: there is very little time left before the hard deadline of June 1.

Democrats and representatives of the Republican Party have not yet reached an agreement, differences have not been eliminated, although "there are fewer and fewer controversial issues."

Most likely, the level of the national debt will be raised once again, as it happened before. It is also possible that by the "strong-willed" decision of President Biden (theoretically, he has such a right. What will then happen to the voters' trust in him is a separate question).

The problem will be resolved, and investors will turn their attention to the Fed's monetary policy.

According to some media reports, the Fed is already ready to print about $800 billion more. Among other things, this means that the growth of inflation in the United States will reach a new level.

Probably, the dollar is waiting for another wave of decline if the Fed does not continue the cycle of tight monetary policy, possibly raising the rate significantly above 6.00% (against 5.25% at the moment).

In the meantime, the dollar retains an overwhelming superiority in the market, while investors are not in a hurry to buy American debt amid the unresolved issue of its limit.

It is also possible that on the eve of the long weekend, investors will continue to fix in long positions on the dollar, which will cause its further decline today (sluggish dynamics and low trading volumes are expected on Monday: Spring Bank Holiday in the UK, Memorial Day in the USA, the continuation of the celebration of the Holy Spirit Day in Catholic countries (it it will be on Sunday, May 28) against the background of the absence of important publications in the economic calendar).

Despite the correction observed in the first half of today's trading day, the dollar ends the last full trading week of May with total superiority.

So, at the moment, its DXY index has decreased by about 23 points from the peak reached yesterday since mid-March and the mark of 104.24.

And we again see almost 100% direct correlation of the dynamics of the dollar with the dynamics of the yield of US government bonds, in particular, with the yield of 10-year bonds. It, in turn, has grown by 12.5% since May 11, to 3.78% at the moment.

From a technical point of view, the DXY index is trying to gain a foothold in the medium-term bull market zone, above the key support levels of 103.55, 103.70. The breakdown of yesterday's high of 104.28 will be a signal to build up long positions and will mean a return to the long-term bull market zone.

In an alternative scenario, a breakdown of the support levels of 103.70, 103.55, and then 103.32, 102.59 will be a signal for the resumption of short positions.

Support levels: 103.70, 103.55, 103.32, 103.00, 102.74, 102.59, 102.00, 101.50, 101.00, 100.80, 100.50, 100.00, 99.25, 99.00.

Resistance levels: 104.00, 105.00, 105.85, 106.00, 107.00, 107.80.