- The DXY index struggles to find a direction below the 90.00 level.
- The dollar loses momentum after the FOMC minutes.
- Markit’s preliminary PMI release and existing home sales feature prominently on today’s economic calendar.
The US dollar DXY index, which measures the strength of the dollar against a basket of major currencies, alternates gains with losses and remains under pressure around the 89.80 region during the European session on Friday.
US Dollar Index Risks Further Setbacks
The DXY index seeks to reverse the recent weakness, although it is still trading below the 90.00 level, while global sentiment continues to lean towards assets with the highest perceived risk and market participants have already fully assimilated the FOMC minutes.
Furthermore, recent comments from Fed officials have reaffirmed the Federal Reserve’s patient stance when trying to reach your goals in both employment and inflation, pouring cold water over the recent fizz after the minutes regarding the reduction of the bond purchase program.
On Thursday, Atlanta Fed Governor R. Kaplan pleaded for “take your foot gently off the accelerator“, while reiterating that many FOMC members are open to discussing the matter in future meetings.
A highlight of Friday’s US economic calendar is the release of Markit’s preliminary PMI figures and April new home sales data.
What can we expect around the USD?
So far, the DXY index has found strong support in the 89.70 region, although the Fed-led recovery appears to have found initial resistance at the 90.00 level for the time being. Looking at the bigger picture, the negative stance on the coin seems to prevail among market participants. This view has been exacerbated after the April NFP nonfarm payroll report, at the same time damaging sentiment around the imminent full reopening of the US economy, which in turn is underpinned by the relentless strength of the National fundamentals, the strong launch of the vaccination campaign and the resurgence of market rumors regarding an earlier-than-expected adjustment in bond buying by the Fed in the wake of the latest FOMC minutes.
Key events in the US this week: Preliminary Manufacturing PMI, Existing Home Sales (Friday).
Eminent Background Issues: Biden’s bill to boost nearly $ 4 trillion worth of infrastructure. 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 up 0.12% on the day, trading at 89.85. A breakout of 90.90 (May 11 high) would open the door to 91.07 (100-day SMA) and 91.43 (May 5 high). On the other hand, the next support is at 89.68 (May 19 low), followed by 89.20 (January 6 low) and 88.94 (March 2018 low).