US Dollar Index looks consolidative around 91.00 ahead of ISM

• DXY keeps decent gains around the 91.00 level.
• US 10-year yields trade near the 1.45% mark.
• US ISM Manufacturing comes up next in the calendar.

The US Dollar Index (DXY), which tracks the greenback vs. a bundle of its main competitors, navigate the area of 3-week tops just above the 91.00 mark at the beginning of the week.

US Dollar Index focused on yields, data

The index adds to Friday’s strong advance and manage to reclaim the area just above 91.00 the figure on the back of the persistent sentiment favouring the dollar, which is in turn underpinned by higher US yields.

However, the current recovery in the dollar could be put to the test later in the week, as the Biden’s $1.9 trillion stimulus package will now be debated at the House of Representatives and Chief Powell is expected to reaffirm (once again) the Fed’s dovish stance.

Earlier in the session, FOMC’s L.Brainard said the coronavirus pandemic exposed flaws in the financial system and added that valuations in a number of asset classes look elevated vs. historical norms. She also noted that virus-linked risks could affect investors risks sentiment.

Later in the NA docket, Markit’s final PMIs for the month of February are due seconded by the always-relevant ISM Manufacturing.

What to look for around USD

The index manages to regain the upper hand and approach the 91.00 yardstick. The reversion of the recent weakness in the dollar came in tandem with the strong bounce of yields to levels last recorded a year ago. While the reflation/vaccine trade continues to keep bullish attempts in the buck contained, bouts of concerns regarding a pick-up in inflation (and inflation expectations) stemming from the expected extra fiscal stimulus could provide some pockets of strength in the dollar for the time being. Against this, occasional upside in the buck should remain short-lived amidst the broad-based bearish outlook for the currency in the medium/longer-term. This, in turn, is propped up by the reinforced mega-accommodative stance from the Fed until “substantial further progress” is seen, persistent chatter of extra fiscal stimulus and prospects of a strong recovery in the global economy, which are all seen underpinning the better sentiment in the risk complex.

Key events in the US this week: ISM Manufacturing PMI (Monday) – ADP Report, ISM Non-Manufacturing, Fed’s Beige Book (Wednesday) – Initial Claims, Powell’s speech (Thursday) - Nonfarm Payrolls (Friday).

Eminent issues on the back boiler: 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 0.14% at 91.00 and a breakout of 91.12 (weekly high Mar.1) would open the door to 91.31 (100-day SMA) and finally 91.60 (2021 high Feb.5). On the other hand, the next support emerges at 89.68 (weekly low Feb.25) seconded by 89.20 (2021 low Jan.6) and then 88.94 (monthly low March 2018).