US Dollar Index clings to gains around 92.30 ahead of FOMC

The US Dollar Index (DXY), which gauges the greenback vs. a bundle of its main rivals, trades within a narrow range around the 92.30 region.

US Dollar Index weaker on yields, looks to FOMC

The index trades on the negative footing so far this week and extends the corrective downside after hitting new 2021 peaks in the 93.40/45 band during the past week.

The corrective downside in US yields continue to put the buck under pressure on Wednesday. Indeed, yields of the key US 10-year reference break below the 1.65% level to trade in new multi-day lows. The upbeat mood in the risk-associated universe also underpins the outflows from the dollar.

Later in the US data space, all the attention is expected to gyrate around the publication of the FOMC Minutes. In the docket, weekly MBA Mortgage Applications are due followed by February’s Trade Balance figures and the EIA’s report on crude oil inventories.

In addition, Chicago Fed C.Evans (2023 voter, centrist) and Richmond Fed T.Barkin (voter, centrist) are also due to speak.

What to look for around USD

The upside momentum in the dollar faltered ahead of the 93.50 region in past sessions, sparking a corrective downside to the vicinity of the key 200-day SMA around 92.40. In addition, the recently approved fiscal stimulus package adds to the ongoing outperformance of the US economy narrative as well as the investors’ perception of higher inflation in the next months, all morphing into extra oxygen for the dollar. However, the mega-accommodative stance from the Fed (until “substantial further progress” in inflation and employment is made) and hopes of a strong global economic recovery (now postponed to later in the year) remain a source of support for the risk complex and carry the potential to curtail the upside momentum in the dollar in the second half of the year.

Key events in the US this week: FOMC Minutes (Wednesday) – initial Claims, Powell’s speech (Thursday) – Producer Prices (Friday).

Eminent issues on the back boiler: Biden’s new stimulus 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? Future of the Republican party post-Trump acquittal.

US Dollar Index relevant levels

At the moment, the index is gaining 0.07% at 92.36 and a break above 93.43 (2021 high Mar.31) would expose 94.00 (round level) and finally 94.30 (monthly high Nov.4). On the other hand, the next support emerges at 92.25 (weekly low Apr.7) followed by 91.46 (50-day SMA) and then 91.30 (weekly low Mar.18).