US Dollar DXY Index Moves to 3-Day Highs Above 90.20 Ahead of CPI

• The DXY index gains additional traction above the 90.00 level.
• The US CPI for the month of May occupies a central place on the economic calendar.
• The yields of the US 10-year bond seek to recover 1.50%.

The US dollar DXY index, which measures the strength of the dollar against a basket of the main currencies, recovers the smile and extends momentum above the 90.00 level during the European session on Thursday.

The US dollar index focuses on key data and the ECB

The DXY index manages to post decent gains so far this European morning on Thursday, always above the 90.00 level and amid a slight rally in US 10-year benchmark yields to 1.50%.

Meanwhile, caution prevails among investors before the release of key data, somehow relegating developments related to the economic recovery and the progress of the campaign and vaccination to the background and instead, refocuses attention on inflation expectations.

Regarding the US data, all the attention will be on the publication of the inflation figures for May measured by the CPI. Overall consumer prices are expected to increase 4.7% year-over-year and underlying prices by 3.4% during the last twelve months.

Furthermore, investors are also expected to follow closely the ECB’s monetary policy meeting, with a possible modification of the asset purchase program at the center of the debate.

What can we expect around the USD?

The DXY index appears to have encountered a stiff barrier in the 90.50 / 60 region for the time being. The disappointing NFP figures for May now underpin the Fed’s narrative that it is still premature to start talks about phasing out its bond purchase program. Despite the recent strength of the dollar, the outlook for the currency remains negative in the long term. This view is supported by the persistent mega-accommodative stance of the Federal Reserve (until “further substantial progress” in inflation and employment is made) for the foreseeable future and growing optimism about a strong global economic recovery.

Key events in the US this week: Inflation figures measured by the CPI, initial jobless claims (Thursday) – Consumer sentiment in June (Friday).

Eminent Background Topics: Biden’s bill to boost infrastructure worth nearly $ 6 trillion. Trade conflict between the United States and China under the Biden administration. 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 gaining 0.13% on the day, trading at 90.25. A breakout of 90.62 (June 4 high), would open the door to 90.90 (May 13 high) and finally 91.05 (100-day SMA). On the other hand, the next support is at 89.53 (May 25 low), followed by 89.20 (January 6 low) and 88.94 (March 2018 low).