US Dollar Index eases from tops near 90.40, focus on US CPI

• DXY gives away earlier gains to the 90.40 region.
• US 10-year yields also creeps lower around 1.61%.
• US inflation figures tracked by the CPI next of relevance in the docket.

The greenback, in terms of the US Dollar Index (DXY), faltered around the 90.40 region and sparked a corrective downside to the 90.25/20 band at the time of writing.

US Dollar Index looks to data

The index extends the erratic performance so far this week, although it looks well supported by the 90.00 neighbourhood for the time being. Indeed, despite the prevailing bearish note around the buck, sellers still remain unable to convincingly breach the 90.00 mark.

Increased volatility (as per the recent rise in the VIX, aka “the panic index”), market chatter regarding higher inflation in the next months plus a corrective upside in US yields have all been collaborating in preventing the index to drop further south of the 90.00 yardstick in past hours.

In the US data space, April’s inflation figures gauged by the CPI will take centre stage later on Wednesday. In addition, weekly MBA Mortgage Applications is due along with the EIA’s report on US crude oil inventories.

Back to the Fed, permanent voter and dovish member R.Clarida will speak later on Wednesday followed by speeches by Atlanta Fed R.Bostic (voter, centrist) and Philly Fed P.Harker (2023 voter, hawkish).

On Tuesday, FOMC Governor L.Brainard noted the need for patience to achieve the Fed’s goals amidst prevailing risks. Both she and Atlanta Fed R.Bostic reiterated that bouts of higher prices should be deemed as temporary and defended the continuation of the accommodative stance from the Fed. In addition, San Francisco Fed M.Daly and Cleveland Fed L.Mester noted the positive outlook for the economy in spite of the latest miss in the labour market report.

What to look for around USD

The index extends the choppy activity so far this week, while the 90.00 area still emerges as a tough nut to crack for USD-sellers. Recent bouts of risk aversion lent some much-needed oxygen to the dollar, although the negative stance on the currency appears to dominate the broader scenario for the time being. 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: April CPI, Core CPI (Wednesday) - Initial Claims (Thursday) – 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 gaining 0.05% at 90.21 and a breakout of 91.06 (100-day SMA) would open the door to 91.43 (weekly/monthly high May 5) and finally 91.70 (50-day SMA). On the flip side, immediate contention lines up at 89.98 (monthly low May 11) followed by 89.68 (monthly low Feb.25) and then 89.20 (2021 low Jan.6).