US Dollar Index DXY Struggles to Find Direction Around 90.00 Level, Focus Is on Fed and Data

• The DXY index consolidates the recent drop and hovers around the 90.00 region.
• The dollar has decoupled from the performance of yields in recent hours.
• Housing data, Powell’s testimony, and CB consumer confidence stand out on today’s economic calendar.

The US dollar DXY index, which measures the strength of the dollar against a basket of major currencies, is struggling to find direction around the 90.00 level at the start of the European session on Tuesday.

DXY US Dollar Index turns attention to Powell

The DXY index moves without a clear direction on Tuesday after three consecutive daily falls and at the same time challenges the 2020-2021 support line around the psychological level of 90.00.

As usual in recent days, reflation trading continues to dominate sentiment among market participants, aided by the firm launch of vaccines and prospects for strong recovery of the world economy after the pandemic. Meanwhile, the DXY index appears to have ignored the recent rally in benchmark 10-year yields, which tested the key 1.40% region for the first time since February 2020 earlier this week.

Later Tuesday, Fed Chairman Jerome Powell will testify before the Banking, Housing and Urban Affairs Committee on the semi-annual monetary policy report. Also noteworthy on the economic calendar is the publication of the housing price index measured by the S & P / Case-Shiller index and the Conference Board consumer confidence indicator for the month of February.

What can we expect around the USD?

The DXY index flirts with key support at 90.00, while the selling bias around the dollar has accelerated lately. Meanwhile, bullish attempts on the dollar should remain short-lived, amid the fragile overall outlook for the currency in the medium / long term. This is underpinned by the Fed’s (strengthened) accommodative stance, additional fiscal stimulus, and prospects for a strong recovery in the global economy, which are seen to underpin better confidence in risk appetite.

Key events this week in the US: Consumer Confidence as measured by the Conference Board and President Powell’s Semi-Annual Monetary Policy Report (Tuesday), Fourth Quarter GDP Review and Initial Jobless Claims (Thursday), and PCE-Measured Inflation Figures and Reading end of consumer sentiment (Friday).

Eminent Background Topics: 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 down 0.01% on the day, trading at 90.00. The next support is at 89.20 (January 6 low), followed by 88.94 (March 2018 low) and 88.25 (February 16, 2018 low). On the other hand, a breakout of 91.05 (February 17 high) would open the door to 91.42 (100-day SMA) and finally 91.60 (February 5 high).