US Dollar Index tumbles to fresh lows in sub-90.00 levels

• DXY loses further the grip and breaches the 90.00 yardstick.
• Yields of the US 10-year reference tread water around 1.65%.
• Housing Starts, Building Permits next of relevance in the docket.

The greenback, in terms of the US Dollar Index (DXY), extends the bearish note below the key support at the 90.00 mark on turnaround Tuesday.

US Dollar Index in 3-month lows

The index loses ground for the fourth consecutive session in the first half of the week and returns to levels last seen in late February in the sub-90.00 region.

The increasing selling pressure in the buck comes despite yields of the key US 10-year note navigate within a consolidative theme around the 1.65% zone, although the prevailing sentiment among investors keep favouring the risk complex.

Regarding the market chatter around the inflation issue, Fed’s Vice-President R.Clarida reiterated on Monday that occasional bouts of higher inflation are deemed as transitory, adding that the re-opening of the economy is expected to be a gradual process. Atlanta Fed R.Kaplan favoured taper talks to start sooner rather than later, while he also expects inflation pressures to moderate in 2022.

In the US data space, the centre of the debate will be on the housing sector with the release of April’s Housing Starts and Building Permits. Later in the NA session, the API report on crude oil inventories will close the docket on Tuesday.

What to look for around USD

The index has fully faded the rally seen during March and returns to levels below the psychological 90.00 neighbourhood despite the reluctance of US yields to grind lower. Looking at the broader scenario, the negative stance on the currency seems to prevail among market participants. This view has been exacerbated following April’s Payrolls, hurting at the same time the sentiment surrounding the imminent full re-opening of the US economy, which is in turn sustained by the unabated strength in domestic fundamentals, the solid vaccine rollout and once again the resurgence of the market chatter regarding an anticipated tapering. The latter comes in despite Fed’s efforts to talk down this scenario, at least for the next months.

Key events in the US this week: Building Permits, Housing Starts (Tuesday) – FOMC Minutes (Wednesday) – Initial Claims, Philly Fed Index (Thursday) – Flash Manufacturing PMI, Existing Home Sales (Friday).

Eminent issues on the back boiler: Biden’s plans to support infrastructure and families, worth nearly $4 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 losing 0.36% at 89.86 and faces the next support at 89.68 (monthly low Feb.25) followed by 89.20 (2021 low Jan.6) and then 88.94 (monthly low March 2018). On the other hand, a breakout of 90.90 (weekly high May 11) would open the door to 91.06 (100-day SMA) and finally 91.43 (weekly/monthly high May 5).