Dollar index: Risks remain skewed to the downside despite minor bounce from 3-month low

The US dollar charts a minor recovery from multi-year lows.
The US Democrats flip Senate, revive reflation trades.
The US inflation expectations jump to the highest since November 2018.

Omkar Godbole FXStreet Contributor

The dollar index, which tracks the greenback's value against majors, has recovered to 89.47 from the 33-month low of 89.21 reached Wednesday. However, the path of least resistance for the US dollar appears to be on the downside, with the US bond markets signaling reflation.

The US 10-year yield has risen above 1% for the first time since March 2020 alongside the US 10-year breakeven rate's rise to a 26-month high of 2.06%. The bond markets look to be pricing reflation, expansion in the level of output of an economy by government stimulus, using either fiscal or monetary policy.

The Federal Reserve is already running an ultra-easy monetary policy. Meanwhile, with the Democrats now in control of the US Senate, the markets expect a bigger fiscal stimulus.

According to Bloomberg, reflation trades are getting a new lease on life with Democrats taking Senate. As such, the anti-risk greenback is expected to remain under pressure.

That said, a minor bounce could be seen if the US-China tensions weigh over the equity markets.

According to the Wall Steet Journal (WSJ), US officials are reportedly considering prohibiting Americans from investing in Alibaba and Tencent Holdings. The move comes following the US President Donald Trump's decision to ban transactions with 8 Chinese software applications and NYSE's decision to delist Chinese telecommunications companies. However, at press time, the futures tied to the S&P 500 are up 0.44%.

Technical levels

Dollar Index Spot

Overview
Today last price	89.47
Today Daily Change	0.02
Today Daily Change %	0.02
Today daily open	89.41

Trends
Daily SMA20	90.16
Daily SMA50	91.45
Daily SMA100	92.37
Daily SMA200	94.86

Levels
Previous Daily High	89.8
Previous Daily Low	89.21
Previous Weekly High	90.38
Previous Weekly Low	89.52
Previous Monthly High	92.02
Previous Monthly Low	89.52
Daily Fibonacci 38.2%	89.43
Daily Fibonacci 61.8%	89.57
Daily Pivot Point S1	89.15
Daily Pivot Point S2	88.88
Daily Pivot Point S3	88.56
Daily Pivot Point R1	89.74
Daily Pivot Point R2	90.06
Daily Pivot Point R3	90.33

Author

Omkar Godbole

FXStreet Contributor

Omkar Godbole, editor and analyst, joined FXStreet after four years as a research analyst at several Indian brokerage companies.

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