- The DXY Index loses more traction and falls to lows near the 90.50 level.
- US 10-year yields appear stable around the 1.65% zone.
- The release of retail sales data and consumer sentiment from the University of Michigan stand out on today’s economic calendar.
The upward momentum in the US dollar DXY index, which measures the strength of the dollar against a basket of major currencies, loses traction and drags it to new two-day lows in the region of 90.50 during the European session on Friday.
DXY US Dollar Index focuses attention on data and returns
DXY Index Returns Recent Gains and Reverses to New 2-Day Lows after Thursday’s rejection near the 91.00 hurdle, with the slight drop in US yields also contributing to the downward movement.
In fact, once market participants have assimilated higher than expected inflation figures during April (published on Wednesday), sentiment around the dollar seems somewhat deflated, allowing some recovery in risk appetite.
On the Fed’s outlook, the FOMC’s Waller said Thursday that expects inflation to exceed the Fed’s target in the next few years and return to the 2% target in 2023. He also expects the Fed to keep the accommodative posture for “some time”. In addition, Barkin of the Richmond Fed emphasized the superior performance of the US economy compared to other countries thanks to improved consumer confidence and a “booming” real estate sector.
Regarding the US data, today highlights the publication of retail sales and the preliminary reading of consumer sentiment from the University of Michigan for the month of May. In addition, figures for industrial production, manufacturing production, capacity utilization and business inventories will also be released.
What can we expect around the USD?
The bullish momentum in the DXY index was exhausted just below the 91.00 hurdle earlier in the week. Recent bouts of risk aversion lent some much-needed oxygen to the dollar, although the negative stance on the currency appears to dominate the broader long-term picture. This view has been exacerbated after the April NFP, adding at the same time to sentiment around the impending full reopening of the US economy, the relentless strength of 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. The latter occurs despite the Fed’s efforts to lower this scenario, at least for the next few months.
Key events in the US this week: Retail sales, industrial production, consumer sentiment for May (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 shedding 0.17% on the day, trading at 90.56. Next support is at 89.98 (May 11 low), followed by 89.68 (Feb 25 low) and 89.20 (Jan 6 low). On the other hand, a breakout of 90.90 (May 11 high) would open the door to 91.07 (100-day SMA) and finally 91.43 (May 5 high).
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