US dollar DXY index retreats from highs near 91.00 level

• The DXY index returns some gains and falls below the 91.00 level.
• The yield on the 10-year US bond stabilizes around 1.28%.
• Weekly initial jobless claims, housing data, and Fed speeches feature prominently on today’s economic calendar.

The bullish momentum around the dollar deflates a bit and causes the US dollar DXY index, which measures the strength of the dollar against a basket of major currencies, falls again below the 91.00 level.

DXY US Dollar Index focuses attention on returns and data

Following the recent advance to weekly highs above the round 91.00 level, the DXY Index is now losing some ground and returns to the 90.70 / 80 zone then the opening bell in the Old Continent on Thursday.

As usual, the recent moderate rally in the dollar came alongside the strong rally in US yields, with the 10-year benchmark testing the 1.33% area on Wednesday. The optimistic tone in the US bond market shows investors’ perception of higher inflation in the medium and long term as a response to the increase in fiscal spending and the superior performance of the US economy compared to the other countries of the G -10.

Following the release of the FOMC minutes on Wednesday, the Committee reinforced the pessimistic stance of the Federal Reserve, while Fed members generally noted that possible episodes of higher inflation are considered temporary and at the same time defended the Fed’s promise of maximum employment.

Regarding the US data, today will be released the initial unemployment claims weekly at the start of the US session, followed by the Philadelphia Fed index, building permits and home starts and the EIA weekly report on US crude oil inventories.

Additionally, L. Brainard of the FOMC and R. Bostic, governor of the Atlanta Fed, have speeches scheduled later in the session.

What can we expect around the USD?

The DXY index’s corrective rally appears to have hit a decent hurdle near the 91.00 region, always following the renewed correlation with US yields. However, bullish attempts on the dollar should remain short-lived, amid the fragile overall outlook for the currency in the medium / long term. Meanwhile, the current 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 are anticipated. expected to become an additional appetite for riskier assets.

Key events this week in the US: Initial jobless claims and the Philadelphia Fed index on Thursday before preliminary PMIs on Friday.

Eminent Background Topics: 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? Future of the Republican Party after Trump’s acquittal.

Relevant levels of the US dollar DXY index

At the time of writing, the DXY index is shedding 0.21% on the day, trading at 90.75. Immediate support is at 90.22 (Feb 16 low), followed by 90.04 (Jan 21 low) and 89.20 (Jan 6 low). On the other hand, a breakout of 91.05 (February 17 high) would open the door to 91.53 (100-day SMA) and finally 91.60 (February 5 high).