US Dollar Index needs to hold 91.30 to keep Q2 upside hopes alive – Westpac

The US Dollar Index (DXY) is struggling to capitalise on the growth outperformance narrative as yields stabilise. A break below 91.30 would be an early warning that the medium-term bear trend is resuming ahead of schedule, economists at Westpac appraise. 

DXY upside potential beyond mid-2021 seems unlikely 

“DXY at a crossroads needs to survive a test of support in the lows-91s, likely in coming days, to restore confidence that there’s still fuel for the USD from the macro-outperformance narrative. More eye-catching upside surprises across a sweep of key data are likely in coming months”. 

“Any potential DXY upside that materialises in Q2 likely proves far more restrained than Q1. For one, the positioning fuel is no longer there, with more than half the aggregated short USD position built-in 2020 unwound in Q1.” 

“Medium DXY bear trend likely resumes in 2021H2, when the stimulus fuelled US rebound levels off, Europe reopens and the EC begins joint bond issuance.”