US Dollar Index extends the breakdown of 92.00

The US Dollar Index (DXY), which tracks the greenback vs. a bundle of its main rivals, extends the downside momentum further south of the 92.00 yardstick.

US Dollar Index weaker on lower yields

The index recedes for the third session in a row on Wednesday, always tracking the downside in US yields. In fact, yields of the US 10-year note navigate the lower bound of the recent range around 1.62% and approach the key 1.60% support.

The greenback keeps losing momentum, as investors have already priced in much of the upcoming positive news regarding the US economy, shifting their focus to the progress of the economic recovery in Europe instead.

Also weighing on the buck appears the recently released inflation figures tracked by the CPI, which seem to have come in short of investors’ expectations in March.

Later in the NA session, MBA will publish its weekly Mortgage Applications figures ahead of the weekly report on US crude oil supplies by the EIA and the publication of the Fed’s Beige Book.

In addition, Chairman Powell will participate in a discussion panel at the Economic Club of Washington. Furthermore, NY Fed J.Williams (permanent voter, centrist), FOMC’s R.Clarida (permanent voter, centrist) and Atlanta Fed R.Bostic (voter, centrist) are all due to speak.

What to look for around USD

The dollar breached the 92.00 support and now looks vulnerable to a deeper pullback in the short-term horizon. This view is supported by the retracement in US yields and the loss of enthusiasm on the US reflation/vaccine trade. Furthermore, 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 undermine further the dollar’s momentum in the second half of the year.

Key events in the US this week: Chairman Powell speech, Fed’s Beige Book (Wednesday) – Retail Sales, Initial Claims, Philly Fed Index, Industrial Production (Thursday) – Housing Starts, Building Permits, advanced Consumer Sentiment (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 losing 0.12% at 91.72 and faces the next support at 91.57 (50-day SMA) followed by 91.30 (weekly low Mar.18) and then 91.03 (100-day SMA). On the upside, a break above 93.43 (2021 high Mar.31) would expose 94.00 (round level) and finally 94.30 (monthly high Nov.4).