US DOLLAR INDEX MEETS INITIAL SUPPORT NEAR 90.30

  • DXY remains largely side-lined above 90.30 on Monday.
  • US markets are closed due to the Presidents’ Day holiday.
  • FOMC Minutes, Retail Sales, flash PMIs next of note in the docket.

The greenback, when gauged by the US Dollar Index (DXY), starts the week on the back footing near the 90.30 region.

US DOLLAR INDEX FOCUSED ON DATA, RISK TRENDS

The index attempts a consolidative mood in the lower end of the recent range around 90.30, while the outlook for the greenback remains tilted to the bearish side despite the recent moderate rebound in yields of the US 10-year benchmark.

In fact, investors’ preference keeps pointing towards the risk-associated universe, mainly on the back of the reflation trade and helped by the vaccine rollout, plans of extra fiscal stimulus and solid growth prospects in the US and abroad.

Absent activity in the US markets due to the Presidents’ Day holiday on Monday, the dollar is expected to look to the broad risk appetite trends for direction ahead of key data releases due later in the week.

What to look for around USD

The corrective downside in the index appears to have met a decent support near the 90.30/20 band recently. The price action in the dollar seems to have decoupled somewhat from the performance of US yields in past days, while the continuation of the downtrend in the dollar looks the most likely scenario for the time being against the backdrop of the fragile outlook for the currency in the medium/longer-term. In the meantime, the current massive monetary/fiscal stimulus in the US economy, the “lower for longer” stance from the Fed and prospects of a strong recovery in the global economy are forecast to keep any serious bullish attempts in the buck well contained.

Key events this week in the US: January’s Retail Sales and Industrial Production plus the FOMC Minutes (Wednesday). Weekly Initial Claims and the Philly Fed Index are due on Thursday ahead of flash PMIs (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 0.12% at 90.31 and faces initial support at 90.25 (weekly low Feb.10) followed by 90.04 (weekly low Jan.21) and then 89.20 (2021 low Jan.6). On the other hand, a breakout of 91.60 (2021 high Feb.5) would open the door to 91.62 (100-day SMA) and finally 92.46 (23.6% Fibo of the 2020-2021 drop).



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