- The DXY index is moving without a clear direction around the 91.00 level.
- Investors’ attention remains on US yields and inflation.
- Powell’s speech and initial jobless claims are high on the US economic calendar.
The US dollar DXY index, which measures the strength of the dollar against a basket of major currencies, struggles to find direction around the 91.00 level during the European session on Thursday.
US Dollar Index focuses attention on Powell, data and returns
The DXY Index seeks to extend Wednesday’s gains around the 91.00 region, always supported by growing investor perception of higher inflation in the coming months, strong US recovery pace and launch of vaccines.
In fact, the expected improvement in US economic recovery versus other G-10 countries continues to support dollar momentum, buttressed recently by upbeat US fundamentals. In addition, market participants continue to assess the probability of higher inflation due to the expected increase in fiscal stimulus.
During today’s American session, President Powell will participate in the event titled “Conversation on the United States Economy” at the Wall Street Journal Jobs Summit. Also notable on the US economic calendar are the publication of initial jobless claims, unit labor costs, nonfarm productivity, and factory orders.
What can we expect around the USD?
The DXY index underwent a correction after hitting multi-week highs above the 91.00 level earlier in the week. The reversal of the recent dollar weakness came in tandem with a sharp rebound in bond yields to the levels last recorded a year ago. Against this, the occasional rise in the dollar should remain short-lived amid the overall bearish outlook for the currency in the medium / long term. This, in turn, is reinforced by the Fed’s strengthened mega-accommodative stance until “further substantial progress” is observed, persistent rumors of additional fiscal stimulus, and prospects for a strong recovery in the world economy, which they are considered to support the best confidence in risk appetite.
Key events this week in the US: Initial Unemployment Claims and Powell Speech (Thursday), NFP Non-Farm Payrolls (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 gaining 0.07% on the day, trading at 91.01. A breakout of 91.39 (March 2 high), would open the door to 91.60 (February 5 high) and finally 92.46 (23.6% Fibonacci retracement of the 2020-2021 dip). On the other hand, the next support is at 89.68 (February 25 low), followed by 89.20 (January 6 low) and 88.94 (March 2018 low).