US Dollar Index weaker, extends the drop below 92.00

The greenback, in terms of the US Dollar Index (DXY), recedes further ground and extend the recent breakdown of the 92.00 support.

US Dollar Index weaker on US yields, looks to data

The index corrects lower for the third consecutive session, coming under further selling pressure after hitting new 2021 highs in the mid-92.00s on Tuesday.

The move lower in US yields was exacerbated in response to disappointing US inflation figures for the month of February published on Wednesday. In fact, yields of the 10-year benchmark have now breached the key 1.50% yardstick after climbing beyond the 1.62% mark last Friday, levels last seen in February 2020.

DXY, in the meantime, keeps looking to the vaccine/reflation trade for price action along with the performance of US yields and always closely watching inflation expectations on the back of increasing US fiscal stimulus.

In the docket, January’s JOLTs Job Openings are due seconded by usual weekly Claims and a 30-year Bond Auction.

What to look for around USD

The sentiment surrounding the dollar suffered the recent US inflation figures and the subsequent correction to the sub-92.00 region. The change of heart in the buck seen in past weeks came in tandem with the strong bounce in US yields to levels recorded over a year ago, all against the backdrop of rising investors’ perception of higher inflation in the next months. However, a sustainable move higher in DXY should be taken with a pinch of salt amidst the mega-accommodative stance from the Fed (until “substantial further progress” is seen), extra fiscal stimulus and hopes of a strong economic recovery overseas.

Key events in the US this week: Initial Claims (Thursday) – Flash February Consumer Sentiment (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 0.29% at 91.56 and faces the next support at 91.17 (100-day SMA) seconded by 91.05 (high Feb.17) and then 90.63 (50-day SMA). On the upside, a breakout of 92.50 (2021 high Mar.9) would expose 92.82 (200-day SMA) and finally 94.30 (monthly high Nov.4).