US Dollar Index flirts with daily highs above 90.00 ahead of data

DXY advances further north of the 90.00 level.
US 10-year yields creep back to the 1.60% region.
ADP report, weekly Claims, ISM Non-Manufacturing next on tap.

Pablo Piovano FXStreet

The greenback resumes the upside above the 90.00 mark following Wednesday’s inconclusive price action when gauged by the US Dollar Index (DXY).

US Dollar Index looks to data

The index advances past the key 90.00 yardstick in the second half of the week on the back of the ongoing rebound in US yields and a generalized cautious note among investors ahead of crucial US data releases.

In fact, yields of the key US 10-year reference return to the 1.60% neighbourhood and regain some ground lost following the decline since the beginning of the month. The move higher in yields collaborates with the marginal steepening of the 2y-10-y yield curve, while the 2y-10y spread remains somewhat steady around the 145 pts.

The better note in the dollar also reflects the positive view from the Fed’s Beige Book (Wednesday), which highlighted that the economy expanded at a moderate pace in the April-May period.

Later in the session, market participants will closely follow the publication of the ADP Report and weekly Initial Claims, as a prelude to Friday’s all-important Nonfarm payrolls for the month of May. In addition, the ISM Non-Manufacturing is due seconded by Challenger Job Cuts, the final Markit’s Services/Composite PMI and the EIA’s report.

What to look for around USD

The index regains some composure along with the recovery of the 90.00 yardstick so far this week. Looking at the broader scenario, the negative stance on the dollar seems to prevail among market participants, as speculation of higher inflation in the medium-term now looks to have lost momentum and the US economic outperformance narrative seems almost fully priced in. Bolstering the bearish view on the buck emerges further confirmation of the Fed’s mega-accommodative stance for the foreseeable future, as per recent FOMC Minutes and Fed-speakers.

Key events in the US this week: ADP Report, Initial Claims, ISM Non-Manufacturing (Thursday) – Nonfarm Payrolls, Factory Orders (Friday).

Eminent issues on the back boiler: Biden’s plans to support infrastructure and families, worth nearly $6 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 0.25% at 90.13 and a breakout of 90.44 (weekly high May 28) would open the door to 90.90 (weekly high May 13) and finally 91.07 (100-day SMA). On the other hand, the next contention emerges at 89.53 (monthly low May 25) followed by 89.20 (2021 low Jan.6) and then 88.94 (monthly low March 2018).

Author

Pablo Piovano

FXStreet

Born and bred in Argentina, Pablo has been carrying on with his passion for FX markets and trading since his first college years.

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