US Dollar DXY Index Under Pressure Retesting 92.00 Region

• The DXY index retreats from annual highs and returns to the 92.00 region.
• Lower US yields weigh on the USD and drag the DXY index lower.
• The NFIB index and the API report stand out on the US economic calendar.

The bullish momentum of the dollar seems somewhat depressed and drag the US dollar index DXY, which measures the strength of the dollar against a basket of major currencies, back to the region of 92.00.

US Dollar Index DXY focuses attention on returns

The DXY index is under pressure after hitting highs in the 92.50 region earlier on Tuesday. In fact, the downward correction in US yields has forced the dollar to give ground and revisit the 92.00 region.

Additionally, benchmark yields on the US 10-year bond are sailing around 1.53% after rising to levels last seen more than a year past 1.62% last Friday, which which has become a renewed selling pressure on the dollar.

In the meantime, the reflation trade, stimulus optimism and vaccines continues to favor the US dollar and reinforces the narrative of the superior performance of the US economy vis-à-vis other G-10 countries.

During the American session, the NFIB index will be the only prominent publication on the US economic calendar, followed by the weekly report on crude oil inventories from the API.

What can we expect around the USD?

General sentiment around the dollar holds firm and eventually pushed the DXY index to fresh yearly highs above the 92.00 level on Tuesday. The recent change in attitude in the dollar came along with the strong rebound in US yields to levels recorded more than a year ago, all in the context of the growing perception of investors of higher inflation in the coming months. However, a sustainable upward move in the DXY index should be taken with a pinch of salt amid the Fed’s mega-accommodative stance (until “substantial progress” is seen), additional fiscal stimulus, and hopes for a strong economic recovery abroad.

Key events this week in the US: Inflation figures measured by the CPI (Wednesday), initial jobless claims (Thursday), consumer sentiment for February (Friday).

Eminent Background Issues: 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 0.34% on the day, trading at 91.99. A breakout of 92.50 (March 9 high), would expose 92.88 (200-day SMA) and finally 94.30 (November 4 high). On the other hand, the next support is at 91.20 (100-day SMA), followed by 91.05 (February 17 high) and 90.56 (50-day SMA).