- The DXY index retraces the recent advance and challenges the 90.00 level.
- US 10-year yields remain below 1.60% for now.
- Advanced Q1 GDP, Durable Goods Orders, and Initial Weekly Unemployment Claims feature prominently on the economic calendar today.
The US dollar DXY index, which measures the strength of the dollar against a basket of major currencies, struggles to find direction while challenges the key region of 90.00 during the European session on Thursday.
US dollar DXY index focuses attention on data
The DXY index retraces part of Wednesday’s moderate advance and retests the 90.00 region due to resumption of risk appetite among investors on Thursday.
In fact, the focus of attention of investors targets higher perceived risk assets amid end-of-month cash flows in the dollar and consolidation in US yields. In fact, 10-year US bond yields remain locked in a very narrow range below 1.60% for the time being.
What’s more, outlook remains weak around the US dollar after further confirmation of the Fed’s mega-flexible stance while considering high inflation as “transitory”.
Regarding the US data, today highlights the publication of advanced GDP for the first quarter, the initial weekly unemployment claims, durable goods orders and pending home sales, both for the month of April.
In his testimony Wednesday, R. Quarles of the FOMC noted that medium-term inflation risks are “weighted up” due to the current fiscal stance. At the same time, did not rule out starting the debate about a reduction in the purchase of Fed bonds in the next meetings.
What can we expect around the USD?
The DXY index remains under pressure despite having rallied to the 90.00 region recently. Looking at the bigger picture, the negative stance on the dollar appears to prevail among market participants as speculation of higher inflation in the medium term now appears to have lost momentum and the narrative of superior US economic performance appears be almost discounted in price. Driving bearish sentiment on the dollar is also further confirmation of the Fed’s mega-accommodative stance for the foreseeable future, based on recent FOMC minutes and Fed speeches.
Key events in the US this week: Preliminary Q1 GDP, Initial Jobless Claims, Durable Goods Orders (Thursday) – Core PCE, Personal Income / Spending, University of Michigan Final Consumer Sentiment Index (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 down 0.07% on the day, trading at 89.98. The next support is at 89.53 (May 25 low), followed by 89.20 (Jan 6 low) and 88.94 (March 2018 low). On the other hand, a breakout of 90.90 (May 11 high) would open the door to 91.08 (100-day SMA) and finally 91.43 (May 5 high).
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