- The DXY index remains under pressure and falls to lows near the 90.30 level.
- The persistent improvement in risk appetite weighs on the dollar.
- The focus of the markets is expected to be on the US CPI for January.
The US dollar index DXY, which measures the strength of the dollar against a basket of major currencies, remains on the defensive so far this week and is now testing new lows near 90.30.
US Dollar DXY Index Weaken Ahead of CPI Data
The DXY index loses ground for the fourth day in a row on Wednesday and moves through multi-day lows in the region of 90.35 / 30, always in the context of a continuous improvement in sentiment around risk appetite.
In fact, the reflation trade has returned to the fore and has been exacerbated after January’s NFP nonfarm payroll report came in below expectations last Friday. The dollar has also lost support from the US bond market, where the benchmark 10-year yields have made a downward correction after hitting highs near 1.20% earlier in the session.
Regarding the economic data of the United States, all the attention will be in the inflation figures measured by the CPI and the core CPI for the month of January and Fed Chairman Powell’s speech. Additionally, December’s monthly wholesale inventories will be released alongside the EIA’s weekly US crude oil supply report.
What can we expect around the USD?
The corrective rise in the dollar lost steam at the 91.60 zone last week, causing a sharp pullback thereafter. Occasional bouts of strength in US yields remain the almost exclusive driver of dollar bullish attempts, helped by prospects for strong US growth versus other G-10 countries and the launch of vaccines. The continuation of the downtrend of the dollar seems the most likely scenario amid the fragile prospects for the currency in the medium / long term, and always in the context of the current massive fiscal and monetary stimulus in the US economy, the Federal Reserve’s “lower for longer” stance and the prospects for a strong recovery in the global economy, which is expected to turn into additional appetite for riskier assets.
Key events this week in the US: Inflation Figures Measured By CPI / Core CPI, President Powell’s Address On “The State Of The US Labor Market” on Wednesday and the preliminary indicator of consumer sentiment for the month of February on Friday.
Eminent Background Topics: Trade conflict between the United States and China under the Biden administration. Trump’s impeachment. Reduction of speculation in the face of economic recovery. Real US interest rates versus Europe.
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 90.37. Initial support is at 90.32 (Feb 10 low), followed by 90.04 (Jan 21 low) and 89.20 (Jan 6 low). On the upside, a breakout of 91.60 (Feb 5 high), would open the door to 91.74 (100-day SMA) and finally 92.46 (23.6% Fibonacci retracement of the 2020-2021 dip).
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