- The DXY index is moving higher and is approaching the 91.00 level.
- General cautionary sentiment bolsters demand for the dollar.
- US markets are closed on Monday due to the Martin Luther King holiday.
He US dollar DXY index, which measures the strength of the dollar against a basket of major currencies, extends Friday’s gains and approaches key level at 91.00, at new 2021 highs.
US Dollar Index DXY focuses attention on politics and risk aversion
The DXY Index advances for the second day in a row at the start of the week, supported by the persistent feeling of risk aversion in the markets.
Indeed, risk aversion sentiment remains unchanged on Monday. despite the optimistic data of the Chinese economy posted during today’s Asian session. The data showed that China’s economy expanded 2.6% quarter-on-quarter in the October-December period and 6.5% on an annualized basis. Other data showed that industrial production expanded 7.3% in December from a year earlier, while retail sales increased 4.6% year-on-year.
Risk aversion also gets additional support after last Friday’s mixed data from the US economic calendar, when retail sales and the preliminary indicator of consumer confidence were well below estimates.
Meanwhile, liquidity conditions are expected to remain marginal due to the US Martin Luther King Day holiday later in the week, and on the US political stage, Joe Biden will be appointed on Wednesday. as the 46th president of the United States.
What can we expect around the USD?
The DXY Index has regained buying interest after bottoming out in the 89.20 region in the first week of trading of the new year and has managed to advance to the 91.00 level so far this Monday, while also reaching new yearly highs. . The recovery in US yields continues to support the dollar, as investors continue to perceive a possible pick-up in inflationary pressure / expectations in response to the more likely increase in fiscal stimulus under a Democratic White House. However, the outlook for the dollar remains fragile in the short / medium term for the time being amid massive fiscal and monetary stimulus in the US economy, the “lower for longer” stance from the Federal Reserve and the prospects for a strong recovery in the global economy.
Relevant levels of the US dollar DXY index
At the time of writing, the DXY index is gaining 0.18% on the day, trading at 90.88. A breakout of 91.01 (December 21, 2020 high), would open the door to 91.15 (55-day SMA) and finally 92.46 (23.6% Fibonacci retracement of the 2020-2021 dip). On the other hand, immediate support is at 89.20 (low of January 6), followed by 88.94 (low of March 2018) and 88.25 (low of February 2018).
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