US Dollar Index struggles for direction around 90.00, looks to Fed, data

  • DXY consolidates the recent drop and hovers around 90.00.
  • The dollar has decoupled from performance in yields in past hours.
  • Housing data, Fed’s Powell testimony, Consumer Confidence next on tap.

The greenback, in terms of the US Dollar Index (DXY), looks for direction in the 90.00 neighbourhood on turnaround Tuesday.

US Dollar Index looks to Powell

The index trades without clear direction on Tuesday following three consecutive daily pullbacks and challenges at the same time the 2020-2021 support line around the psychological 90.00 yardstick.

As usual in past sessions, the reflation trade continues to dominate the sentiment among market participants helped by the firm vaccine rollout and prospects of a sharp recovery in the global economy post-pandemic. The index, in the meantime, seems to have ignored the recent rebound in yields of the 10-year benchmark, which tested the key 1.40% region for the first time since February 2020 at the beginning of the week.

Later on Tuesday, Fed’s Chief J.Powell will deliver the Semiannual Monetary Policy Report before  the Committee on Banking, Housing and Urban Affairs. In the calendar, the FHFA will publish its House Price Index followed by the S&P/Case-Shiller Index and the Conference Board will release the always-relevant Consumer Confidence gauge for the month of February.

What to look for around USD

The index flirts with the key 90.00 support, as the selling bias around the dollar has accelerated as of late. In the meantime, bullish attempts in the buck should remain short-lived amidst the broad-based fragile outlook for the currency in the medium/longer-term. The latter is sustained by the (reinforced) accommodative stance from the Fed, extra fiscal stimulus and prospects of a strong recovery in the global economy, which are seen underpinning the better sentiment in the risk-associated space.

Key events in the US this week: Consumer Confidence tracked by the Conference Board and Chief Powell’s Semiannual Monetary Policy Report (Tuesday), another revision of Q4 GDP and Initial Claims (Thursday) and inflation figures gauged by the PCE and the final Consumer Sentiment measure (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 losing 0.01% at 90.00 and faces the next support at 89.20 (2021 low Jan.6) followed by 88.94 (monthly low March 2018) and finally 88.25 (2018 low Feb.16). On the flip side, a breakout of 91.05 (weekly high Feb.17) would open the door to 91.42 (100-day SMA) and finally 91.60 (2021 high Feb.5).

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