- The DXY index extends the weekly decline to the 90.30 area.
- Trade relations between the United States and China are back in the news.
- Weekly Unemployment Claims and the Fed’s Monetary Policy Report are prominent on today’s economic calendar.
The US dollar DXY index, which measures the strength of the dollar against a basket of major currencies, remains on the defensive near the region of 90.30.
US Dollar DXY Index focuses attention on risk trends and data
The DXY index loses ground for the fifth day in a row on Wednesday, simultaneously extending the rejection from the 2021 highs of 91.60 set on February 5. Furthermore, the DXY index continues to hover around the 2020-2021 trend line, which is holding the decline for the time being.
The better tone in risk appetite among investors has been sustained by the rally in reflation trading in recent weeks, putting the USD under additional selling pressure along with falling yields in US bond markets.
The disappointing US inflation figures published in January on Wednesday have also added to the renewed weakness around the US dollar.
The trade front between the United States and China has resurfaced after a phone call between President Biden and his Chinese counterpart Xi Jinping left the door open for the resumption of talks in the future.
Looking at US data, weekly jobless claims will take center stage on today’s economic calendar, followed by the Federal Reserve’s Semi-Annual Monetary Policy Report.
What can we expect around the USD?
The corrective rise in the dollar lost steam at the 91.60 zone last week, causing a sharp pullback thereafter. Occasional bouts of strength in US yields remain the almost exclusive driver of dollar bullish attempts, helped by prospects for strong US growth versus other G-10 countries and the launch of vaccines. The continuation of the downtrend of the dollar seems the most likely scenario amid the fragile prospects for the currency in the medium / long term, and always in the context of the current massive fiscal and monetary stimulus in the US economy, the Federal Reserve’s “lower for longer” stance and the prospects for a strong recovery in the global economy, which is expected to turn into additional appetite for riskier assets.
Key events this week in the US: Jeuves initial jobless claims and preliminary indicator of consumer sentiment for February on Friday.
Eminent Background Topics: Trade conflict between the United States and China under the Biden administration. Trump’s impeachment. Reduction of speculation in the face of economic recovery. Real US interest rates versus Europe. Could US fiscal stimulus cause overheating?
Relevant levels of the US dollar DXY index
At the time of writing, the DXY index is down 0.08% on the day, trading at 90.35. Initial support is at 90.25 (Feb 10 low), followed by 90.04 (Jan 21 low) and 89.20 (Jan 6 low). On the upside, a breakout of 91.60 (Feb 5 high), would open the door to 91.74 (100-day SMA) and finally 92.46 (23.6% Fibonacci retracement of the 2020-2021 dip).
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